AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1998
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BORG-WARNER AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3404508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
(312) 322-8500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------
LAURENE H. HORISZNY, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
BORG-WARNER AUTOMOTIVE, INC.
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
(312) 322-8500
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
DAVID A. KATZ, ESQ. DANIELLE CARBONE, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SHEARMAN & STERLING
51 WEST 52ND STREET 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10022
(212) 403-1000 (212) 848-4000
--------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL A REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE OR OTHER JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------- ------------------- ------------------- ------------------- ---------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED (1) REGISTERED (2) PER UNIT (3) OFFERING PRICE (3) REGISTRATION FEE
- ------------------------------------- ------------------- ------------------- ------------------- ---------------------
- ------------------------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Debt Securities................... $300,000,000 100% $300,000,000 $83,400
===================================== =================== =================== =================== =====================
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(1) Any securities registered hereunder may be sold separately, together or as
units with other securities registered hereunder.
(2) If any Debt Securities are issued at an original issue discount, such
greater amount as shall result in an aggregate offering price to the public
which shall not exceed the amount set forth under Proposed Maximum
Aggregate Offering Price, or if Debt Securities are issued in a foreign or
composite currency, an equivalent amount of such foreign or composite
currency.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1998
PROSPECTUS
BORG-WARNER AUTOMOTIVE, INC.
$300,000,000
DEBT SECURITIES
We may offer from time to time unsecured debt securities in the form of
either senior or subordinated debt. Senior debt includes our notes, debt and
other evidences of unsecured indebtedness, which are for money borrowed and are
not subordinated. Subordinated debt, designated at the time it is issued, is
entitled to interest and principal payments after the senior debt payments.
The specific terms of these securities will be provided in supplements
to this prospectus. You should read this prospectus and the supplements
carefully before you invest.
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT YOU SHOULD CONSIDER,
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
--------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
THE DATE OF THIS PROSPECTUS IS _______________ __, 1998.
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ABOUT THIS PROSPECTUS The SEC allows us to
"incorporate by reference" the
This prospectus is part of a information we file with it, which
registration statement that we means that we can disclose
filed with the Securities and important information to you by
Exchange Commission utilizing a referring you to those documents.
"shelf" registration process. Under The information incorporated by
this process, we may sell any reference is considered to be part
combination of the securities of this prospectus, and information
described in this prospectus in one that we file with the SEC later
or more offerings up to a total will automatically update and
dollar amount of $300,000,000. This supersede this information. We
prospectus provides you with a incorporate by reference our
general description of the documents listed below and any
securities we may offer. Each time future filings made by us with the
we offer to sell securities, we SEC under Sections 13(a), 13(c), 14
will provide a supplement to this or 15(d) of the Securities Exchange
prospectus that will contain Act of 1934, as amended, until we
specific information about the sell all of the securities offered
terms of that particular offering. in this prospectus.
The prospectus supplement may also
add, update, or change information - Annual Report on Form 10-K
contained in this prospectus. You for the year ended December
should read both this prospectus 31, 1997, as amended by the
and any prospectus supplement Form 10K-A filed with the
together with the additional SEC on June 26, 1998;
information described under the
heading "Where You Can Find More - Proxy Statement dated March
Information." To find more detail 20, 1998 (other than the
regarding certain of the documents, sections entitled
you should read the exhibits filed "Compensation Committee
with this registration statement. Report on Executive
Compensation" and
WHERE YOU CAN FIND MORE INFORMATION "Performance Graph");
We file annual, quarterly and - Quarterly Reports on Forms
special reports, proxy statements 10-Q for the quarters ended
and other information with the SEC. March 31 and June 30, 1998;
You may read and copy any document
we file at the SEC's public - Current Report on Form 8-K
reference rooms in Washington, dated July 24, 1998.
D.C., New York, New York and
Chicago, Illinois. Please call the You may request a copy of
SEC at 1-800-SEC-0330 for further these filings, at no cost, by
information on the public reference writing or telephoning us at:
rooms. Our filings with the SEC are
also available to the public on the Borg-Warner Automotive, Inc.
SEC's Internet web site at 200 South Michigan Avenue
http:\\www.sec.gov. Our common Chicago, Illinois 60604
stock is listed on the New York Attn: Investor Relations and
Stock Exchange and information Communications Department
about us is also available at the Telephone (312) 322-8607
NYSE's offices. or (312) 322-8547
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You should rely only on the meaning of the Private Securities
information incorporated by Litigation Reform Act of 1995. Such
reference or provided in this forward-looking statements are
prospectus or any prospectus subject to risks, uncertainties and
supplement. We have not authorized other factors which could cause
anyone else to provide you with actual results to differ materially
different or additional from future results expressed or
information. You should not assume implied by such forward-looking
that the information in this statements. The most significant of
prospectus or any supplement is such risks, uncertainties and other
accurate as of any date other than factors are discussed under the
the date on the front of those heading "Risk Factors," beginning
documents. on page 6 of this prospectus, and
you are urged to carefully consider
SPECIAL NOTE REGARDING such factors. Additional risks and
FORWARD-LOOKING STATEMENTS uncertainties are detailed in our
filings with the SEC, including the
Certain statements contained Cautionary Statements filed as
or incorporated by reference in Exhibit 99.1 to our 1997 Annual
this prospectus are "forward-looking Report. We do not have any
statements" within the obligation to update
forward-looking statements.
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THE COMPANY
Our corporate name is Borg-Warner Automotive, Inc. ("BORG-WARNER" or
the "COMPANY"). We are a leading, global Tier I supplier of highly engineered
systems and components, primarily for automotive powertrain applications. Our
products are manufactured and sold worldwide, primarily to original equipment
manufacturers ("OEMS") of passenger cars, sport utility vehicles and light
trucks. We operate 35 manufacturing facilities in 12 countries serving the North
American, European and Asian automotive markets, and we are an original
equipment supplier to every major OEM in the world.
Our products fall into four operating groups: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. Our Powertrain
Systems group accounted for $605.2 million (33%) of our 1997 consolidated sales
before inter-business eliminations. Its primary products include four-wheel and
all-wheel drive transfer cases. We supply a substantial portion of the
four-wheel drive ("4WD") transfer cases used by Ford Motor Company ("FORD") ,
including those installed on the Ford Explorer, the best selling sport utility
vehicle in the United States, the Ford Expedition, the Lincoln Navigator, the
Ford F-150 pickup truck and the Mercury Mountaineer. We have designed and
developed an exclusive 4WD Torque-On-Demand(TM) transfer case, available on the
Ford Explorer, Ford Expedition and Lincoln Navigator, which allows vehicles to
automatically shift from two-wheel drive to 4WD when electronic sensors indicate
it is necessary. We also supply transfer cases for a new Mercedes-Benz M-Class
all-activity 4WD vehicle, which was first made available to consumers in 1997.
Our Automatic Transmission Systems group accounted for $519.8 million
(28%) of our 1997 consolidated sales before inter-business eliminations. Its
products include friction plates, transmission bands, one-way clutches and
torque converters for automatic transmissions. We are a supplier to virtually
every major automatic transmission manufacturer in the world. Our 50%-owned
joint venture in Japan, NSK-Warner Kabushiki Kaisha ("NSK-WARNER"), with 1997
sales of $297 million, is a leading producer of friction plates and one-way
clutches in Japan.
Our Morse TEC group accounted for $324.1 million (18%) of our 1997
consolidated sales before inter-business eliminations. Morse TEC manufactures
chain and chain systems including HY-VO(R) front-wheel drive ("FWD") and 4WD
chain, MORSE GEMINI(TM) Transmission Chain Systems, timing chain and timing
chain systems, crankshaft and camshaft sprockets, chain tensioners and snubbers.
We are an original equipment supplier to every major manufacturer that uses
chain for such applications.
Our Air/Fluid Systems group accounted for $357.0 million (20%) of our
1997 consolidated sales before inter-business eliminations. Our air and fluid
management products include mechanical, electromechanical and electronic
components and systems used for engine and emission control, fuel and vapor
management, electronically controlled automatic transmissions and steering and
suspension systems.
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Our executive offices are located at 200 South Michigan Avenue,
Chicago, Illinois 60604, telephone (312) 322-8500.
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RISK FACTORS
You should carefully consider the following factors, as well as the
information contained elsewhere or incorporated by reference in this prospectus,
before you make any decision to invest in the unsecured debt securities
described in this prospectus and the accompanying prospectus supplement (the
"DEBT SECURITIES").
HOLDING COMPANY STRUCTURE
The Debt Securities will be issued by the Company. Because we are a
holding company that conducts all of our operations through our subsidiaries and
because the Debt Securities will be issued by us, holders of Debt Securities
will generally have a junior position to claims of creditors of our
subsidiaries, including trade creditors, debtholders, secured creditors, taxing
authorities, guarantee holders and any preferred stockholders. As of June 30,
1998, total liabilities (other than intercompany liabilities) of our
subsidiaries were approximately $415.4 million and debt of our subsidiaries was
approximately $67.8 million. Moreover, our ability to pay principal and interest
on the Debt Securities is, to a large extent, dependent upon our receiving
dividends, interest or other amounts from our subsidiaries.
AUTOMOTIVE INDUSTRY CYCLICALITY AND CONDITIONS
Our principal operations are directly related to domestic and foreign
automotive production. Automotive sales and production are cyclical and depend
upon general economic conditions and other factors. As compared to 1997, we
expect automotive production in 1998 to be flat or to decline slightly in North
America, increase moderately in Europe, and to decline in Asia. Any significant
reduction in automotive production would have a material adverse effect on our
sales to OEMs and our financial position and operating results.
During 1997, approximately 21% of our sales, including sales from
unconsolidated joint ventures, were in Asia. We continue to be adversely
affected by the weakness in Asia's economies. Sales of vehicles with our
higher-end content in automatic transmissions and four-wheel drive are
particularly susceptible to weak economic conditions. While we believe that our
presence in Asian markets is critical to our long-term success, we cannot assure
you that economic conditions in Asia will improve in the future and that we will
not continue to be adversely impacted by these economic conditions.
All three of our primary North American customers, GM, Ford and
Chrysler Corporation ("CHRYSLER"), have major contracts with the United
Automobile, Aerospace and Agricultural Implement Workers of America (the "UAW").
Because of the United States OEMs' dependence on a single union, we are impacted
by labor difficulties and work stoppages at OEMs' facilities. For example, we
lost approximately $24.9 million in revenue as a result of the 1998 54-day
strike at GM.
Many of our products are currently used exclusively in sport utility
vehicles and light trucks. Any significant reduction in production in this
market segment or loss of business in this market segment would have a material
adverse effect on our sales to OEMs and our financial po-
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sition and operating results. For example, our 1998 first and second quarter
results were adversely impacted by the loss to a competitor of a 4WD application
for the Ford F-250 truck and the Ford F-350 truck, a 37% reduction in 4WD
transfer case shipments for the Ford F-150 truck, and a decline in 4WD transfer
case shipments to SsangYong in Korea, which became a unit of Daewoo Motor
Company in 1998.
COMPETITION
We compete worldwide with a number of other manufacturers and
distributors which produce and sell products similar to ours. Price, quality and
technological innovation are the primary elements of competition. Our
competitors include vertically integrated units of our major OEM customers, as
well as a large number of independent domestic and international suppliers. We
are not as large as a number of these companies and do not have as many
financial or other resources. We cannot assure you that our business will not be
adversely affected by increased competition in the markets in which we operate.
The competitive environment has also changed dramatically over the past
few years as our traditional United States OEM customers, faced with intense
international competition, have expanded their worldwide sourcing of components.
As a result, we have experienced competition from suppliers in other parts of
the world which enjoy economic advantages such as lower labor costs, lower
health care costs, and, in some cases, export subsidies and/or raw materials
subsidies.
There is also substantial and continuing pressure on the OEMs to reduce
costs, including costs of products we supply. Although OEMs have indicated that
they will continue to rely on outside suppliers, a number of our major OEM
customers manufacture products for their own use that directly compete with our
products. These OEMs could elect to manufacture such products for their own use
in place of the products we currently supply. We believe that our ability to
develop proprietary new products and to control our costs will allow us to
remain competitive. However, we cannot assure you that we will be able to
improve or maintain our gross margins on product sales to OEMs or that the
recent trend by OEMs towards increased outsourcing will continue.
Annual price reductions to OEM customers appear to have become a
permanent feature of our business environment. Price reductions granted in 1997
totaled $18 million. To maintain our profit margins, we seek price reductions
from our suppliers, adopt improved production processes to increase
manufacturing efficiency, update product designs to reduce costs and develop new
products whose benefits support increased pricing. Our ability to pass through
increased raw material costs to our OEM customers is also limited, with cost
recovery less than 100% and often on a delayed basis. We cannot assure you that
we will be able to reduce costs in an amount equal to the annual price
reductions and the increase in raw material costs.
RELIANCE ON MAJOR CUSTOMERS
Our worldwide sales in 1997 to Ford, GM and Chrysler constituted
approximately 43%, 20% and 10%, respectively, of our 1997 consolidated sales.
The corresponding percentages for
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1996 were 42%, 21% and 9%. No other customer accounted for more than 10% of our
consolidated sales in either 1997 or 1996. Our 1997 consolidated sales do not
include the approximately $354 million of sales made by our unconsolidated joint
ventures. If sales from unconsolidated joint ventures were included in 1997
consolidated sales, our worldwide sales to Toyota Motor Corporation and its
affiliates ("TOYOTA") would be approximately 7% of consolidated sales.
Although we have had long-standing relationships with each of Ford, GM,
Chrysler and Toyota and sell a wide variety of products to various divisions of
each company globally, if we lost any significant portion of our sales to any of
these customers, it would have a material adverse effect on our financial
position and operating results.
LABOR RELATIONS
Approximately 37% of our domestic hourly employees are unionized. Of
our two most significant domestic collective bargaining agreements, one was
renewed in March, 1998 for our Muncie, Indiana plant, and the other was renewed
in October 1998 for our Ithaca, New York plant. While we believe that our
relations with our employees are good, we could experience a material adverse
effect on our financial position or operating results as a result of a prolonged
dispute with our employees.
UNFUNDED PENSION OBLIGATIONS
We have substantial unfunded pension obligations. On December 31, 1997,
the present values of our projected benefit obligations and accumulated benefit
obligations of underfunded plans were $234.4 million and $231.1 million,
respectively. The fair value of our pension plan assets with respect to such
plans as of December 31, 1997 was $177.5 million. The resulting unfunded portion
of $56.9 million at December 31, 1997 compared favorably with an unfunded
portion of $69.8 million at December 31, 1996 (based on our projected benefit
obligations on the respective dates). This decrease was due in part to an
increase in the value of investments related to these obligations. Of the 1997
unfunded portion, approximately $25.3 million related to pension obligations for
our German subsidiaries, which do not require funding. Our long-term objective
is to fund our entire pension obligation with funds that are generated from
operations, although we cannot assure you that this will actually occur.
ENVIRONMENTAL REGULATIONS AND PROCEEDINGS
Our operations are subject to laws governing, among other things,
emissions to air, discharge to waters and the generation, handling, storage,
transportation, treatment and disposal of waste and other materials. We believe
that our business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental and health and
safety laws. However, the operation of automotive parts manufacturing plants
entails risks in these areas and we cannot assure you that we will not incur
material costs or liabilities. In addition, potentially significant expenditures
could be required in order to comply with evolving environmental and health and
safety laws that may be adopted in the future.
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We believe that the overall impact of compliance with regulations and
legislation protecting the environment will not have a material adverse effect
on our future financial position or operating results, although we cannot assure
you that will be the case. Capital expenditures and expenses in 1997
attributable to compliance with environmental laws were not material.
We and certain of our current and former direct and indirect corporate
predecessors, subsidiaries and divisions have been identified by the United
States Environmental Protection Agency and certain state environmental agencies
and private parties as potentially responsible parties ("PRPS") at 28 hazardous
waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("SUPERFUND") and equivalent state laws. As a
result, we may be liable for the cost of clean-up and other remedial activities
at these sites.
Based on information available to us which, in most cases, includes:
(1) an estimate of allocation of liability among PRPs; (2) the probability that
other PRPs, many of whom are large, solvent public companies, will fully pay
the costs apportioned to them; (3) currently available information from PRPs
and/or federal or state environmental agencies concerning the scope of
contamination and estimated remediation costs; (4) estimated legal fees; and (5)
other factors, we have established a reserve in our financial statements for
indicated environmental liabilities with a balance of approximately $6.6 million
at June 30, 1998. We currently expect this amount to be expended over the next
three to five years.
We believe that none of these matters, individually or in the
aggregate, will have a material adverse effect on our future financial position
or operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs. However we cannot assure you of the ultimate outcome.
YEAR 2000
We are in the process of upgrading certain aspects of our operations to
ensure that business systems do not fail to function when the Year 2000 arrives
or at other date intervals. We have completed an inventory of key systems and
equipment with potential Year 2000 issues in the areas of business operating
systems, manufacturing operations, operating infrastructure, customers and
suppliers. This included an identification of mission critical systems, an
assessment of the readiness of our applications for Year 2000 and the corrective
action needed, if any.
We also are participating in the process coordinated by the Automotive
Industries Action Group ("AIAG"), a group sponsored by the major U.S.
automakers. The process consists of ongoing surveys to measure a company's state
of readiness and its progress on the assessment and remediation stages of its
program. The survey results are used to monitor progress against remediation
action plans.
Our program to become Year 2000 compliant is being operated on an
enterprise-wide basis. A coordinator has been assigned overall administrative
responsibility; however, each operating unit is responsible for compliance at
its location. As of the end of June 1998, inventories and assessments had been
completed at substantially all of our locations. Corrective action is underway.
We believe that the majority of items identified as non-compliant would not
signifi-
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cantly interfere with our operations if not updated. In addition, our exposure
to an enterprise-wide failure is less likely because of the relative autonomy of
our operating units. We are operating on a schedule to have substantially all
non-compliant items remedied by mid-1999. We are also seeking confirmation from
key suppliers and other third parties that their systems and applications that
affect us will be Year 2000 compliant by mid-1999.
Concurrent with the Year 2000 effort, we are in the process of
upgrading certain of our business operating systems at a number of our units to
improve both business operations and control. We now require any system acquired
to be certified as Year 2000 compliant.
We believe that we will spend approximately $11.5 million for new
systems, to upgrade systems and equipment and for other efforts to ensure
compliance with Year 2000 between 1997 and 1999. These costs will be paid for
with cash from our operations. The bulk of such spending will provide for system
improvements and enhancements including compliance with Year 2000. Through
September 30, 1998, we have spent approximately $6 million. Spending solely
related to Year 2000 compliance is not expected to be material to either our
financial position or results of operations for any given year.
As with any program to upgrade business systems, there are risks that
programs will not be completed on schedule and that programs will not accomplish
all that they were supposed to accomplish. The chance of this happening
throughout the Company is remote. For individual occurrences, the impact would
most likely be a reduced level of quality control for operations and a
substantial increase in the amount of manual intervention in areas such as
material planning and inventory control, statistical process control, and
financial and operational recordkeeping.
We do not have in place substantial contingency plans because we
believe that our efforts will be successful. We have, however, identified
specific procedures required to keep our operations functioning in the event of
delays or machine failures. As we mentioned above, we have identified key
suppliers and requested confirmation as to their Year 2000 compliance. We are
currently in the process of verifying supplier responses, including supplier
audits and other actions as appropriate. We are also considering the
availability of alternative supply sources in the event that they are needed.
We cannot assure you that the corrective actions we are implementing
will prevent dating systems problems or that the cost of doing so will not be
material. In addition, disruptions with respect to the computer systems of
vendors or customers, including both information technology ("IT") and non-IT
systems could impair our ability to obtain necessary materials or products to
sell to or serve our customers. Disruptions of our computer systems or the
computer systems of our vendors or customers, as well as the cost of avoiding
such disruption, could have a material adverse effect upon our financial
position or operating results.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
currencies and a new common currency
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(the "EURO"). The participating countries have agreed to adopt the euro as their
common legal currency on that date. We have begun consideration of the effects
of the euro conversion on our operations, but we are currently unsure of the
potential impact that the euro conversion will have on our financial position or
operating results. Because of the nature of our business and customers, the
effect is not expected to be material.
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USE OF PROCEEDS
Unless otherwise set forth in the applicable prospectus supplement, the
net proceeds from the sale of the Debt Securities will be used for general
corporate purposes, including the repayment of existing indebtedness, additions
to working capital, capital expenditures and acquisitions. Any specific
allocation of the net proceeds of an offering of Debt Securities to a specific
purpose will be described in the related prospectus supplement. We anticipate
that we will raise additional funds from time to time through equity or debt
financings to refinance outstanding indebtedness and to finance our businesses.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the periods indicated below
were as follows:
Six Months Ended
Year Ended December 31, June 30,
------------------------------------ ----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
3.9 7.9 7.0 3.1 6.2 6.4 5.2
In the computation of our ratio of earnings to fixed charges, earnings
consist of earnings before income taxes, fixed charges and capitalized interest
amortization expense. Fixed charges consist of interest expense excluding the
benefit of capitalized interest and including one-third of rental expense
(approximate portion representing interest).
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DESCRIPTION OF DEBT SECURITIES
The following descriptions of the terms of the Debt Securities set
forth certain general terms and provisions of the Debt Securities. The
particular terms of the Debt Securities offered by any prospectus supplement and
the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the prospectus supplement relating to
such offered Debt Securities. To the extent that any prospectus supplement is
inconsistent with any provision in this summary, the information contained in
such prospectus supplement will control.
The Debt Securities which will be our senior debt ("SENIOR DEBT
SECURITIES") will be issued under an Indenture (the "SENIOR DEBT INDENTURE"), to
be entered into between the Company and The First National Bank of Chicago (the
"SENIOR TRUSTEE"). The Debt Securities which will be our subordinated debt
("SUBORDINATED DEBT SECURITIES") will be issued under an Indenture (the
"SUBORDINATED DEBT INDENTURE" and, collectively with the Senior Debt Indenture,
the "INDENTURES"), to be entered into between the Company and a trustee to be
determined (the "SUBORDINATED TRUSTEE"). The forms of the Indentures and the
Debt Securities have been filed, or will be filed by amendment, as exhibits to
the registration statement and you should read them for the provisions that may
be important to you. The Indentures are subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). We have summarized certain
provisions of the Debt Securities and the Indentures below. The summary is not
complete and is subject to, and qualified in its entirety by reference to, the
Indentures and the Debt Securities. Capitalized terms used in the summary have
the meanings set forth in the applicable Indenture unless otherwise defined
herein.
GENERAL
The Debt Securities will be our unsecured senior or subordinated
obligations.
The Indentures do not limit the amount of Debt Securities that we may
issue thereunder and provide that we may issue Debt Securities under the
Indentures from time to time in one or more series.
Reference is made to the prospectus supplement for the following terms
of and information relating to the offered Debt Securities (to the extent such
terms are applicable to such Debt Securities):
- classification as senior or subordinated Debt Securities;
- the specific designation, aggregate principal amount, purchase price
and denomination of the offered Debt Securities;
- the currency or units based on or relating to currencies in which
such Debt Securities are denominated and/or in which principal (and
premium, if any) and/or any interest will or may be payable;
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- any date of maturity;
- the method by which amounts payable in respect of principal, premium
(if any) or interest on, or upon the redemption of, such Debt
Securities may be calculated, and any currencies or indices, or
value, rate or price, relevant to such calculation;
- interest rate or rates (or the method by which such rate will be
determined), if any;
- the date or dates on which any such interest will be payable;
- the place or places where the principal of and interest, if any, on
the offered Debt Securities will be payable;
- any redemption, repayment or sinking fund provisions for the offered
Debt Securities;
- whether the offered Debt Securities will be issuable in registered
form or bearer form ("BEARER SECURITIES") or both and, if Bearer
Securities are issuable, any restrictions applicable to the exchange
of one form for another and to the offer, sale and delivery of Bearer
Securities;
- any applicable United States federal income tax consequences not
described in this prospectus, including whether and under what
circumstances we will pay additional amounts on offered Debt
Securities held by a person who is not a U.S. person (as defined in
the prospectus supplement) in respect of any tax, assessment or
governmental charge withheld or deducted and, if so, whether we will
have the option to redeem such Debt Securities rather than pay such
additional amounts;
- the anticipated market for the offered Debt Securities; and
- any other specific terms of the offered Debt Securities, including
any additional or different events of default, remedies or covenants
provided for with respect to such Debt Securities, and any terms
which may be required by or advisable under applicable laws or
regulations.
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Debt Securities and the prospectus
supplement. Such services will be provided without charge, other than any tax or
other governmental charge payable in connection therewith, but subject to the
limitations provided in the applicable Indenture. Bearer Securities and the
coupons, if any ("COUPONS"), attached to such Bearer Securities will be
transferable by delivery.
Debt Securities may bear interest at a fixed rate (a "FIXED RATE
SECURITY") or a floating rate (a "FLOATING RATE SECURITY"). Debt Securities
bearing no interest or interest at a rate that at the time of issuance is below
the prevailing market rate may be sold at a discount below their stated
principal amount. Special United States federal income tax considerations
applicable to
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any such discounted Debt Securities or to certain Debt Securities issued at par
which are treated as having been issued at a discount for United States federal
income tax purposes will be described in the relevant prospectus supplement to
the extent not described in this prospectus. See "Certain U.S. Federal Income
Tax Considerations."
We may issue Debt Securities from time to time with payment terms which
are calculated by reference to the value or price of one or more currencies or
indices. Holders of such Debt Securities may receive a payment of the principal
amount on any principal payment date, or a payment of interest on any interest
payment date, that is greater than or less than the amount of principal or
interest otherwise payable on such dates, or a redemption amount on any
redemption date that is greater than or less than the principal amount of such
Debt Securities, depending upon the value or price on such dates of the
applicable currency or index. Information for determining the amount of
principal, premium (if any), interest or redemption amounts payable on any date,
the currencies, commodities or indices to which the amount payable on such date
is linked and certain additional tax considerations will be set forth in the
relevant prospectus supplement.
Because we are a holding company that conducts all of our operations
through our subsidiaries and because the Debt Securities will be issued by us,
holders of Debt Securities will generally have a junior position to claims of
creditors of our subsidiaries, including trade creditors, debtholders, secured
creditors, taxing authorities, guarantee holders and any preferred stockholders.
As of June 30, 1998, total liabilities (other than intercompany liabilities) of
our subsidiaries were approximately $415.4 million and debt of our subsidiaries
was approximately $67.8 million. Moreover, our ability to pay principal and
interest on the Debt Securities is, to a large extent, dependent upon our
receiving dividends, interest or other amounts from our subsidiaries.
CERTAIN DEFINITIONS
"ATTRIBUTABLE INDEBTEDNESS" means, with respect to any Sale/Leaseback
Transaction as of any particular time, the present value (discounted at the rate
of interest implicit in the terms of the lease) of the obligations of the lessee
under such lease for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended). "NET RENTAL
PAYMENTS" under any lease for any period means the sum of the rental and other
payments required to be paid in such period by the lessee thereunder, not
including, however, any amounts required to be paid by such lessee (whether or
not designated as rental or additional rental) on account of maintenance and
repairs, insurance, taxes, assessments or similar charges.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets
(less applicable reserves and other properly deductible items) after deducting
therefrom (1) all current liabilities (excluding any current liabilities which
are by their terms extendible or renewable at the option of the obligor thereon
to a time more than 12 months after the time as of which the amount thereof is
being computed), (2) all goodwill, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles and (3) appropriate
adjustments on account of minority interests of other Persons holding stock of
our Subsidiaries, all as set forth on our most
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recent balance sheet (but, in any event, as of a date within 150 days of the
date of determination) and computed in accordance with generally accepted
accounting principles.
"CONSOLIDATED NET WORTH" means the amount of total stockholders' equity
shown in our most recent consolidated statement of financial position.
"CURRENT ASSETS" of any Person includes all assets of such Person that
would in accordance with generally accepted accounting principles be classified
as current assets.
"CURRENT LIABILITIES" of any Person includes all liabilities of such
Person that would in accordance with generally accepted accounting principles be
classified as current liabilities.
"NON-RECOURSE INDEBTEDNESS" means our indebtedness or the indebtedness
of any of our Subsidiaries in respect of which the recourse of the holder of
such indebtedness, whether direct or indirect and whether contingent or
otherwise, is effectively limited to specified assets, and with respect to which
neither we nor any of our Subsidiaries provide any credit support.
"PRINCIPAL PROPERTY" means any manufacturing plant or warehouse,
together with the land upon which it is erected and fixtures comprising a part
thereof, that we own or that is owned by one of our Subsidiaries which
constitutes a " significant subsidiary" (a "SIGNIFICANT SUBSIDIARY") as defined
in Rule 1-02 of Regulation S-X of the Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and is located in the United States, the gross book value
(without deduction of any reserve for depreciation) of which on the date as of
which the determination is being made is an amount which exceeds 1% of
Consolidated Net Tangible Assets, other than any such manufacturing plant or
warehouse or any portion thereof (together with the land upon which it is
erected and fixtures comprising a part thereof) (i) which is financed by
Industrial Development Bonds or (ii) which, in the opinion of the Board of
Directors, is not of material importance to our total business conducted and the
total business conducted by our Subsidiaries, taken as a whole.
"SALE/LEASEBACK TRANSACTION" means any arrangement with any Person
pursuant to which we or any of our Subsidiaries lease for a period of more than
three years, any real or personal property, which property we have or such
Subsidiary has sold or transferred or will sell or transfer to such Person in
contemplation of such leasing.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which is owned, directly
or indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries, or (ii) any partnership or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned. For the purposes of this
definition, "SECURITIES HAVING ORDINARY VOTING POWER" means securities or other
equity interests that ordinarily have voting power for the election of
directors, or persons having management power with respect to the Person,
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.
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SENIOR DEBT
The Debt Securities and Coupons, if any, appertaining thereto that will
constitute part of our senior debt will be issued under the Senior Debt
Indenture and will rank pari passu with all of our other unsecured and
unsubordinated debt.
Limitation on Liens
The Senior Debt Indenture provides that we will not, and will not
permit any of our Subsidiaries to, issue, assume or guarantee any indebtedness
for money borrowed ("DEBT") if such Debt is secured by a mortgage, pledge,
security interest or lien (a "MORTGAGE" or "MORTGAGES") upon any of our
Principal Properties or of any of our Subsidiaries' Principal Properties or upon
any shares of stock or other stock or other equity interest or indebtedness of
any of our Subsidiaries (whether such property, shares of stock or other equity
interest or indebtedness is now owned or hereafter acquired) which owns any
Principal Property, without in any such case effectively providing that the Debt
Securities shall be secured equally and ratably with (or prior to) such Debt;
provided, however, that the foregoing restrictions shall not apply to:
- mortgages existing on the date the Debt Securities are originally
issued or mortgages provided for under the terms of agreements
existing on such date;
- mortgages on Current Assets securing Current Liabilities;
- mortgages on any property we or any of our Subsidiaries acquire,
construct, alter or improve after the date of the Indenture that are
created or assumed contemporaneously with or within one year after
such acquisition (or in the case of property constructed, altered or
improved, after the completion and commencement of commercial
operation of such property, whichever is later) to secure or provide
for the payment of the purchase price or cost of such property,
provided that in the case of any such construction, alteration or
improvement the mortgages shall not apply to any property we or any
of our Subsidiaries theretofore owned other than (i) the property so
altered or improved and (ii) any theretofore unimproved real property
on which the property so constructed or altered, or the improvement,
is located;
- existing mortgages on property we or any of our Subsidiaries acquire
(including mortgages on any property acquired from a Person that is
consolidated with or merged with or into us or any of our
Subsidiaries) or mortgages outstanding at the time any Person becomes
one of our Subsidiaries that are not incurred in connection with such
entity becoming one of our Subsidiaries;
- mortgages in our or any of our Subsidiaries' favor;
- mortgages on any property (1) in favor of domestic or foreign
governmental bodies to secure partial, progress, advance or other
payments pursuant to any contract or statute, (2) securing
indebtedness incurred to finance all or any part of the purchase
price or cost of constructing, installing or improving the property
subject to such mortgages
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including mortgages to secure Debt of the pollution control or
industrial revenue bond type, or (3) securing indebtedness issued or
guaranteed by the United States, any State, any foreign country or
any department, agency, instrumentality or political subdivision of
any such jurisdiction; and
- any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any mortgage
referred to in the foregoing bullet points; provided, however, that
the principal amount of Debt secured thereby shall not exceed the
principal amount of Debt so secured at the time of such extension,
renewal or replacement, together with the reasonable costs related to
such extension, renewal or replacement, and that such extension,
renewal or replacement shall be limited to all or a part of the
property that secured the mortgage so extended, renewed or replaced
(plus improvements on such property).
Notwithstanding the foregoing, we and any of our Subsidiaries may,
without securing the Debt Securities, issue, assume or guarantee secured Debt
(that would otherwise be subject to the foregoing restrictions) in an aggregate
amount that, together with all other such secured Debt and the aggregate amount
of our and our Subsidiaries' Attributable Indebtedness deemed to be outstanding
in respect of all Sale/Leaseback Transactions entered into pursuant to the
provisions described below under "-- Limitation on Sale/Leaseback Transactions"
(excluding any such Sale/Leaseback Transactions the proceeds of which have been
applied in accordance with clauses (2) or (3) under the "-- Limitation on
Sale/Leaseback Transactions" covenant described below), does not exceed 10% of
the Consolidated Net Worth, as shown on a consolidated balance sheet as of a
date not more than 90 days prior to the proposed transaction we prepare in
accordance with generally accepted accounting principles.
Limitation on Sale/Leaseback Transactions
The Senior Debt Indenture provides that we will not, and will not
permit any of our Subsidiaries to, enter into any Sale/Leaseback Transaction
with any Person (other than ourself or one of our Subsidiaries) unless:
(1) at the time of entering into such Sale/Leaseback
Transaction, we or such Subsidiary would be entitled to incur Debt, in
a principal amount equal to the Attributable Indebtedness with respect
to such Sale/Leaseback Transaction, secured by a mortgage on the
property subject to such Sale/Leaseback Transaction, pursuant to the
provisions of the covenant described under "-- Limitation on Liens"
without equally and ratably securing the Debt Securities pursuant to
such provisions;
(2) after the date on which Debt Securities are first issued
and within a period commencing six months prior to the consummation of
such Sale/Leaseback Transaction and ending six months after the
consummation thereof, we or such Subsidiary shall have expended for
property used or to be used in our or such Subsidiary's ordinary course
of business (including amounts expended for additions, expansions,
alterations, repairs and improvements thereto) an amount equal to all
or a portion of the net proceeds of such
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Sale/Leaseback Transaction, and we shall have elected to designate such
amount as a credit against such Sale/Leaseback Transaction (with any
such amount not being so designated to be applied as set forth in
clause (3) below); or
(3) during the 12-month period after the effective date of
such Sale/Leaseback Transaction, we shall have applied to the voluntary
defeasance or retirement of Debt Securities or any of our pari passu
indebtedness an amount equal to the net proceeds of the sale or
transfer of the property leased in such Sale/Leaseback Transaction,
which amount shall not be less than the fair value of such property at
the time of entering into such Sale/Leaseback Transaction (adjusted to
reflect any amount we expended as set forth in clause (2) above), less
an amount equal to the principal amount of such Debt Securities and
pari passu indebtedness we voluntarily defeased or retired within such
12-month period and not designated as a credit against any other
Sale/Leaseback Transaction we or any of our Subsidiaries entered into
during such period.
Unless otherwise specified in the prospectus supplement relating to a
particular series of offered Debt Securities, the covenants applicable to the
Debt Securities would not necessarily afford holders protection in the event
that we are involved in a highly leveraged or other transaction or in the event
of a material adverse change in our financial position or results of operations.
Unless otherwise specified in the prospectus supplement relating to a particular
series of offered Debt Securities, the Debt Securities do not contain any other
provisions that are designed to afford protection in the event that we are
involved in a highly leveraged transaction.
SUBORDINATED DEBT
The Debt Securities and Coupons, if any, attached to such Debt
Securities that will constitute part of the Subordinated Debt Securities will be
issued under the Subordinated Debt Indenture and will be subordinate and junior
in right of payment, to the extent and in the manner set forth in the
Subordinated Debt Indenture, to all of our "Senior Indebtedness." The
Subordinated Debt Indenture defines "SENIOR INDEBTEDNESS" as all of our
indebtedness, including indebtedness we have guaranteed or assumed, for borrowed
money or evidenced by bonds, debentures, notes, letters of credit, interest rate
exchange agreements, currency exchange agreements, commodity forward contracts
or other similar instruments, or indebtedness or obligations with respect to any
lease of real or personal property whether existing on the date hereof or
hereinafter incurred, and any guarantee, amendments, renewals, extensions,
modifications and refundings of any such indebtedness or obligation, provided
that Senior Indebtedness shall not include (1) obligations that, when incurred
and without respect to any election under Section 1111(b) of Title 11, United
States Code, were without recourse to the issuer, (2) our obligations to any of
our Subsidiaries, and (3) any other obligations which by the terms of the
instrument creating or evidencing the same are specifically designated as not
being senior in right of payment to the Subordinated Debt Securities.
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation or other similar proceedings including reorganization
in respect of the Company or a substantial part of our property or (b) that (i)
a default shall have occurred with respect to the pay-
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ment of principal of (and premium, if any) or any interest on or other monetary
amounts due and payable on any Senior Indebtedness or (ii) there shall have
occurred an event of default (other than a default in the payment of principal,
premium, if any, or interest, or other monetary amounts due and payable) with
respect to any Senior Indebtedness, as defined therein or in the instrument
under which the same is outstanding, permitting the holder or holders thereof to
accelerate the maturity thereof, and such default or event of default shall not
have been cured or waived or shall not have ceased to exist, unless, in the case
of a default under clause (ii) above, the default with respect to the Senior
Indebtedness is cured or waived, or 180 days pass after notice of the default is
given to the holders of Senior Indebtedness (unless the maturity of such Senior
Indebtedness has been accelerated), then the holders of all Senior Indebtedness
shall first be entitled to receive payment of the full amount unpaid thereon, or
provision shall be made, in accordance with the relevant Senior Indebtedness,
for such payment in money or money's worth, before the holders of any of the
Subordinated Debt Securities or Coupons are entitled to receive a payment on
account of the principal of (and premium, if any) or any interest on the
indebtedness evidenced by such Subordinated Debt Securities or of such Coupons.
No new period of suspension of payments under clause (ii) above may be commenced
by reason of the same event of default (or any other event of default that
existed or was continuing on the date of the commencement of such period) within
twelve months after the first such notice relating thereto. Without limitation
of the foregoing, upon any acceleration of the Subordinated Debt Securities
because of an Event of Default, we must promptly notify the holders of Senior
Indebtedness of such acceleration, and may not pay the Subordinated Debt
Securities unless (A) 120 days pass after such acceleration and (B) the terms of
the Subordinated Debt Indenture permit such payment at such time.
By reason of such subordination, in the event of our bankruptcy,
insolvency or liquidation, our creditors who are holders of Senior Indebtedness
and our general creditors may recover more, ratably, than holders of the
Subordinated Debt Securities. Certain of our contingent obligations, including
certain guarantees, letters of credit, interest rate exchange agreements,
currency exchange agreements and commodity forward contracts, would constitute
Senior Indebtedness if we became obligated to pay such contingent obligations.
We expect from time to time to incur additional indebtedness
constituting Senior Indebtedness. The Subordinated Debt Indenture does not
prohibit or limit the incurrence of additional Senior Indebtedness or any other
indebtedness and does not require us to adhere to financial covenants or similar
restrictions. To the extent we issue subordinated Debt Securities, we refer you
to the applicable prospectus supplement for the amount of Senior Indebtedness
outstanding.
CONVERSION AND EXCHANGE
The terms, if any, on which Debt Securities of any series will be
convertible into or exchangeable for our common stock or preferred stock,
property or cash, or a combination of any of the foregoing, will be summarized
in the prospectus supplement relating thereto. Such terms may include provisions
for conversion or exchange, either on a mandatory basis, at the option of the
holder, or at our option, in which case the number of our shares of common stock
or preferred stock to be received by the holders of the Debt Securities would be
calculated according to the
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factors and at such time as summarized in the related prospectus supplement. The
prospectus supplement will also summarize the material federal income tax
consequences applicable to such convertible or exchangeable Debt Securities to
the extent not set forth in this prospectus.
EVENTS OF DEFAULT
An Event of Default is defined under each Indenture with respect to
Debt Securities of any series issued under such Indenture as being:
- default in the payment of any interest on any Debt Security when it
becomes due and payable, and continuance of such default for a period
of 30 days;
- default in the payment of the principal of any Debt Security at its
maturity
- default in our performance, or our breach, of any of our covenants or
agreements in such Indenture, continued for 90 days after we receive
written notice;
- acceleration of or any failure to pay at final maturity any of our or
our Subsidiaries' Debt (other than the Debt Securities or Non-
Recourse Indebtedness) in an aggregate amount in excess of $25
million if such acceleration is not rescinded or annulled, or such
indebtedness shall not have been discharged, within 15 days after we
receive written notice thereof; and
- certain events of our or of one of our Significant Subsidiaries'
bankruptcy, insolvency or reorganization.
Each Indenture provides that if an Event of Default, other than certain
events with respect to our bankruptcy, insolvency or reorganization, shall occur
and be continuing, then the Senior Trustee or the Subordinated Trustee, as the
case may be, or the holders of not less than 25% in aggregate principal amount
of the outstanding Debt Securities may, by a notice in writing to us (and to the
Senior Trustee or the Subordinated Trustee, as the case may be, if given by the
holders), declare the principal of the Debt Securities, and all accrued and
unpaid interest thereon, to be due and payable immediately. If an Event of
Default with respect to certain events of our bankruptcy, insolvency or
reorganization shall occur and be continuing, then the principal on the Debt
Securities, and all accrued and unpaid interest thereon, shall be due and
payable immediately without any act on the part of the Senior Trustee or the
Subordinated Trustee, as the case may be, or any holder.
The holders of not less than a majority in principal amount of the
outstanding Debt Securities may, on behalf of the holders of all of the Debt
Securities, waive any past default under the Indenture and its consequences,
except a default (i) in respect of the payment of principal of or interest on
the Debt Securities or (ii) in respect of a covenant or provision that cannot be
modified or amended without the consent of each holder.
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Under each Indenture we are required to file annually with the Senior
Trustee or the Subordinated Trustee, as the case may be, an officers'
certificate as to our compliance with all conditions and covenants. Each
Indenture will provide that the Senior Trustee or the Subordinated Trustee, as
the case may be, may withhold notice to the holders of the Debt Securities of
any default (except payment defaults on the Debt Securities) if it considers it
to be in the interest of such holders to do so.
Subject to the provisions of each Indenture relating to the duties of
the Senior Trustee or the Subordinated Trustee, as the case may be, each
Indenture provides that when an Event of Default occurs and is continuing, the
Senior Trustee or the Subordinated Trustee, as the case may be, will be under no
obligation to exercise any of its rights or powers under such Indenture at the
request or direction of any of the holders, unless such holders shall have
offered to the Senior Trustee or the Subordinated Trustee, as the case may be,
reasonable security or indemnity. Subject to such provisions concerning the
rights of the Senior Trustee or the Subordinated Trustee, as the case may be,
the holders of a majority in aggregate principal amount of the outstanding Debt
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Senior Trustee or the
Subordinated Trustee, as the case may be, or exercising any trust or power
conferred on the Senior Trustee or the Subordinated Trustee, as the case may be,
under such Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Each Indenture provides that we will not consolidate with or merge into
any other corporation, or convey, transfer or lease, or permit one or more of
our Significant Subsidiaries to convey, transfer or lease, all or substantially
all of our property and assets on a consolidated basis, to any Person unless
either we are the continuing corporation or such corporation or Person assumes
by supplemental indenture all of our obligations under such Indenture and the
Debt Securities issued thereunder, immediately after such transaction no Default
or Event of Default shall exist, and the surviving corporation or such Person is
a corporation, partnership or trust organized and validly existing under the
laws of the United States of America, any state thereof or the District of
Columbia.
MODIFICATION OR WAIVER
Each Indenture provides that we may modify and amend such Indenture and
the Senior Trustee or the Subordinated Trustee, as the case may be, may modify
and amend such Indenture with the consent of the holders of not less than a
majority in principal amount of the outstanding Debt Securities; provided that
no such modification or amendment may, without the consent of each holder, among
other things:
- change the maturity of the principal of, or any installment of
interest on, the Debt Securities;
- reduce the principal amount of or the rate of interest on the Debt
Securities;
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- change the place or currency of payment of principal of or interest
on the Debt Securities;
- impair the right to institute suit for the enforcement of any such
payment on or after the maturity thereof;
- reduce the percentage of holders necessary to modify or amend such
Indenture or to consent to any waiver thereunder or reduce the
requirements for voting or quorum described below;
- modify the foregoing requirements or reduce the percentage of
outstanding Debt Securities necessary to waive any past default.
Each Indenture provides that we may modify and amend such Indenture and
the Senior Trustee or the Subordinated Trustee, as the case may be, may modify
and amend such Indenture without the consent of any holder for any of the
following purposes:
- to evidence the succession of another Person to the Company and the
assumption by such Person of our covenants contained in such
Indenture and the Debt Securities;
- to add covenants of the Company for the benefit of the holders or to
surrender any right or power conferred upon the Company;
- to add Events of Default;
- to secure the Debt Securities;
- to evidence and provide for the acceptance of appointment by a
successor Senior Trustee or a successor Subordinated Trustee, as the
case may be;
- to cure any ambiguity, defect or inconsistency in such Indenture;
provided such action does not adversely affect the interests of the
holders;
- to supplement any of the provisions of such Indenture to the extent
necessary to permit or facilitate defeasance and discharge of the
Debt Securities; provided such action shall not adversely affect the
interests of the holders; or
- to conform with the requirements of the TIA.
DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, terminate our obligations with
respect to the outstanding Debt Securities ("DEFEASANCE"). Defeasance means that
we will be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Debt Securities, except for (1) the rights of the
holders of outstanding Debt Securities to receive payment in respect of the
principal of and interest on such Debt Securities when such payments are due,
(2) our obligations to issue temporary Debt Securities, register and transfer or
exchange any Debt Securi-
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ties, replace mutilated, destroyed, lost or stolen Debt Securities, maintain an
office or agency for payments in respect of the Debt Securities and segregate
and hold money in trust, (3) the rights, powers, trusts, duties and immunities
of the Senior Trustee or the Subordinated Trustee, as the case may be, and (4)
the Defeasance provisions of the applicable Indenture. In addition, we may, at
our option and at any time, elect to terminate our obligations with respect to
the Debt Securities (being primarily the restrictions described under "--
Limitation on Liens" and "-- Limitation on Sale/Leaseback Transactions"), and
any omission to comply with such obligations will not constitute a Default or an
Event of Default with respect to the Debt Securities ("Covenant Defeasance").
In order to exercise either Defeasance or Covenant Defeasance:
- we must irrevocably deposit with the Senior Trustee or the
Subordinated Trustee, as the case may be, in trust, for the benefit
of the holders, cash in United States dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and interest
on the outstanding Debt Securities to maturity;
- we must deliver to the Senior Trustee or the Subordinated Trustee, as
the case may be, an opinion of counsel to the effect that the holders
of the outstanding Debt Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such Defeasance
or Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Defeasance or Covenant Defeasance had not
occurred (in the case of Defeasance, such opinion must refer to and
be based upon a ruling of the Internal Revenue Service or a change in
applicable federal income tax laws);
- no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as the last bullet point under
the first paragraph under "-- Events of Default" is concerned, at any
time during the period ending the 91st day after the date of deposit
(it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
- such Defeasance or Covenant Defeasance shall not cause the Senior
Trustee or the Subordinated Trustee, as the case may be, to have a
conflicting interest (as defined by the TIA) with respect to any of
our securities;
- such Defeasance or Covenant Defeasance shall not result in a breach
or violation of, or constitute a default under, the applicable
Indenture or any material agreement or instrument to which we are a
party or by which we are bound; and
- we shall have delivered to the Senior Trustee or the Subordinated
Trustee, as the case may be, an officers' certificate and an opinion
of counsel, each stating that all conditions precedent under the
applicable Indenture to either Defeasance or Covenant De-
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feasance, as the case may be, have been complied with and that no
violations under agreements governing any other outstanding Debt
would result.
SATISFACTION AND DISCHARGE
Each Indenture provides that it will be discharged and will cease to be
of further effect (except as to any surviving rights of registration of transfer
or exchange of the Debt Securities, as expressly provided for in such Indenture)
as to all outstanding Debt Securities when (1) either (a) all the Debt
Securities theretofore authenticated and delivered (except lost, stolen or
destroyed Debt Securities which have been replaced or paid and Debt Securities
for whose payment money or certain U.S. Government Obligations has theretofore
been deposited in trust or segregated and held in trust by us and thereafter
repaid to us or discharged from such trust) have been delivered to the Senior
Trustee or the Subordinated Trustee, as the case may be, for cancellation or (b)
all Debt Securities not theretofore delivered to the Senior Trustee or the
Subordinated Trustee, as the case may be, for cancellation have become due and
payable or will become due and payable at maturity within one year and we have
irrevocably deposited or caused to be deposited with the Senior Trustee or the
Subordinated Trustee, as the case may be, funds in an amount sufficient to pay
and discharge the entire indebtedness on the Debt Securities not theretofore
delivered to the Senior Trustee or the Subordinated Trustee, as the case may be,
for cancellation, for principal of and interest on the Debt Securities to the
date of deposit together with irrevocable instructions from us directing the
Senior Trustee or the Subordinated Trustee, as the case may be, to apply such
funds to the payment thereof at maturity; (2) we have paid or have caused to be
paid all other sums payable under such Indenture by us; and (3) we have
delivered to the Senior Trustee or the Subordinated Trustee, as the case may be,
an officers' certificate and an opinion of counsel stating that all conditions
precedent under such Indenture relating to the satisfaction and discharge of
such Indenture have been complied with.
BOOK-ENTRY SYSTEM
Unless otherwise specified in the applicable prospectus supplement, any
Debt Securities will be represented by certificate in book-entry form ("GLOBAL
DEBT SECURITIES") as set forth below.
Any Global Debt Securities will be registered in the name of The
Depository Trust Company's ("DTC") nominee. Except as set forth below, a Global
Debt Security may not be transferred except as a whole by DTC to a nominee of
DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any
such nominee to a successor of DTC or a nominee of such successor.
DTC has advised us that it is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities of its participants
and to facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes in
accounts
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of the participants, thereby eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by DTC only through
participants.
Upon the issuance by us of any Global Debt Securities, DTC will credit,
on its book-entry registration and transfer system, the respective principal
amounts of Debt Securities to the accounts of participants. The accounts to be
credited will be designated by the applicable underwriter. Ownership of
beneficial interests in a Global Debt Security will be limited to participants
or persons that may hold interests through participants. Beneficial interests in
a Global Debt Security will be shown on, and the transfer thereof will be
effected only through, records maintained by DTC (with respect to beneficial
interests of participants) or by participants or persons that may hold interests
through participants (with respect to beneficial interests of beneficial
owners). The laws of some states require that certain purchasers of securities
take physical delivery of such securities in certificated form. Such limits and
such laws may impair the ability to transfer beneficial interests in a Global
Debt Security.
For a Global Debt Security, so long as DTC or its nominee is the
registered owner of such Global Debt Security, DTC or its nominee, as the case
may be, will be considered the sole owner or holder of the Debt Securities
represented by such Global Debt Security for all purposes under the Senior Debt
Indenture. Except as provided below, owners of beneficial interests in a Global
Debt Security will not be entitled to have Debt Securities represented by such
Global Debt Security registered in their names, will not receive or be entitled
to receive physical delivery of such Debt Securities in certificated form and
will not be considered the owners or holders thereof under the Senior Debt
Indenture or the Subordinated Debt Indenture, as the case may be.
Principal and interest payments in respect of the Debt Securities will
be made in immediately available funds by us to DTC or its nominee, as the case
may be, as the holder of the related Global Debt Securities. None of us, the
Senior Trustee or the Subordinated Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in any Global Debt Securities, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests. None of us, the Senior Trustee or the Subordinated Trustee
will have any responsibility or liability for DTC's exercise of or failure to
exercise any redemption option with respect to any Debt Securities on behalf of
any holder of a beneficial interest therein, other than our obligation to redeem
such Debt Securities if such option is properly exercised by DTC or its nominee,
as registered holder, in accordance with the procedures specified therefor. We
expect that DTC, upon receipt of any payment of principal or interest in respect
of any Global Debt Securities, will credit immediately the accounts of the
related participants with payment in amounts proportionate to their respective
beneficial interests in the principal amount of such Global Debt Securities as
shown on the records of DTC. We also expect that payments by participants to
owners of beneficial interests in
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any Global Debt Securities will be governed by standing customer instructions
and customary practices, as is now the case, with securities held for the
accounts of customers in bearer form or registered in "street name," and will be
the responsibility of such participants. Payments to DTC in respect of the Debt
Securities which are represented by any Global Debt Securities shall be our
responsibility or the responsibility of the Senior Trustee or the Subordinated
Trustee, as the case may be, disbursement of such payments to direct
participants shall be the responsibility of DTC and disbursement of such
payments to beneficial owners shall be the responsibility of direct and indirect
participants.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct and
indirect participants to beneficial owners, and vice versa, are governed by
arrangements among them, subject to statutory or regulatory requirements as may
be in effect from time to time; and none of us, the Senior Trustee or the
Subordinated Trustee will have any responsibility or liability with respect
thereto.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be reliable, but we
take no responsibility for the accuracy of such information.
If DTC is at any time unwilling or unable to continue as depository and
we do not appoint a successor depository within 90 days, we will issue Debt
Securities in certificated form in exchange for each Global Debt Security. In
addition, we may at any time determine not to have one or more series of Debt
Securities represented by any Global Debt Securities. In any such instance,
owners of beneficial interests in any such Global Debt Security will be entitled
to physical delivery of Debt Securities in certificated form equal in principal
amount to such beneficial interest and to have such Debt Securities registered
in their names. Debt Securities so issued in certificated form will be issued in
denominations of $1,000 or any integral multiple thereof and will be issued in
registered form only, without coupons.
THE TRUSTEES
The Indentures and provisions of the TIA incorporated by reference
therein contain limitations on the rights of the Senior Trustee or the
Subordinated Trustee, as the case may be thereunder, should the Senior Trustee
or the Subordinated Trustee, as the case may be become one of our creditors, to
obtain payment of claims in certain cases. We may from time to time maintain
bank accounts and have other customary banking relationships with and obtain
credit facilities and lines of credit from the Senior Trustee or the
Subordinated Trustee, in the ordinary course of business; provided, however,
that if the Senior Trustee or the Subordinated Trustee, as the case may be
acquires any conflicting interest (as defined in Section 310(b) of the TIA), it
must eliminate such conflict or resign.
We will appoint the Senior Trustee or the Subordinated Trustee, as the
case may be at the offices specified in the applicable Indenture as registrar,
principal paying agent and transfer agent for the Debt Securities. In such
capacities, the Senior Trustee or the Subordinated Trustee, as the
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case may be will be responsible for, among other things, (1) maintaining a
record of the aggregate holdings of Debt Securities represented by the Global
Debt Security and accepting Debt Securities for exchange and registration of
transfer, (2) ensuring that payments of principal of and interest on the Global
Debt Security and other Debt Securities received by the Senior Trustee or the
Subordinated Trustee, as the case may be from us are duly paid to DTC or its
nominee or the holders thereof, as the case may be, and (3) transmitting to us
any notices from holders of Debt Securities. We will cause the transfer agent to
act as a registrar. We may vary or terminate the appointment of the transfer
agent or appoint additional or other transfer agents or approve any change in
the office through which any transfer agent acts.
CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences of the acquisition, ownership and disposition by a U.S. Holder (as
defined below) or a United States Alien Holder (as defined below) of Debt
Securities issued in registered form. In the event that we issue Debt Securities
in bearer form, the applicable prospectus supplement will describe the material
federal income tax consequences thereof.
The discussion does not cover all aspects of federal taxation that may
be relevant to, or the actual tax effect that any of the matters described
herein will have on, the acquisition, ownership or disposition of Debt
Securities by particular investors, and does not address state, local, foreign
or other tax laws. In particular, this summary addresses only investors that
will hold the Debt Securities as capital assets and does not discuss all of the
tax considerations that may be relevant to certain types of investors subject to
special treatment under the federal income tax laws (such as banks, insurance
companies, investors liable for the alternative minimum tax, individual
retirement accounts and other tax-deferred accounts, tax-exempt organizations,
dealers in securities or currencies, traders in securities that elect to mark to
market for U.S. federal income tax purposes, investors that will hold the Debt
Securities as part of straddles, hedging transactions or conversion transactions
for federal tax purposes, investors whose functional currency is not the U.S.
dollar or investors who enter into "constructive sales" of the Debt Securities).
Additional United States federal income tax consequences applicable to
particular Debt Securities may be set forth in the applicable prospectus
supplement.
As used herein, the term "U.S. HOLDER" means a beneficial owner of Debt
Securities, that is (1) a citizen or individual resident of the United States
for U.S. federal income tax purposes, (2) a corporation, partnership or limited
liability company created or organized under the laws of the United States, any
State thereof or the District of Columbia, (3) an estate the income of which is
subject to U.S. federal income tax on a net income basis regardless of its
source or (4) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons has the authority to control all substantial decisions of the
trust. A "UNITED STATES ALIEN HOLDER" is any holder who or that is not a U.S.
Holder.
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This summary is based on the Internal Revenue Code of 1986, as amended
(the "CODE"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY. YOU ARE URGED TO CONSULT
YOUR PERSONAL TAX ADVISORS AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES TO YOU OF ACQUIRING, OWNING AND DISPOSING OF THE DEBT
SECURITIES.
U.S. HOLDERS
Except where otherwise expressly indicated, this summary under "U.S.
Holders" deals only with initial purchasers of Debt Securities at the issue
price that are U.S. Holders.
PAYMENTS OF INTEREST
General. Interest on a Debt Security, whether payable in U.S. dollars
or a currency, composite currency or basket of currencies other than U.S.
dollars (a "FOREIGN CURRENCY"), other than interest on a "Discount Debt
Security" that is not "qualified stated interest" (each as defined below under
"Original Issue Discount -- General"), will be taxable to a U.S. Holder as
ordinary income at the time it is received or accrued, depending on the holder's
method of accounting for tax purposes.
Foreign Currency Denominated Interest. If an interest payment is
denominated in, or determined by reference to, a foreign currency, the amount of
income recognized by a cash basis U.S. Holder will be the U.S. dollar value of
the interest payment, based on the exchange rate in effect on the date of
receipt, regardless of whether the payment is in fact converted into U.S.
dollars.
An accrual basis U.S. Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods. Under
the first method, the amount of income accrued will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years of a U.S. Holder, the part of the
period within the taxable year).
Under the second method, the U.S. Holder may elect to determine the
amount of income accrued on the basis of the exchange rate in effect on the last
day of the accrual period or, in the case of an accrual period that spans two
taxable years, the exchange rate in effect on the last day of the part of the
period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis U.S. Holder may instead
translate such accrued interest into U.S. dollars at the exchange rate in effect
on the day of actual receipt. Any such election will apply to all debt
instruments held by the U.S. Holder at the beginning of the first taxable year
to which the election
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applies or thereafter acquired by the U.S. Holder, and will be irrevocable
without the consent of the Internal Revenue Service (the "IRS").
Upon receipt of the interest payment (including a payment attributable
to accrued but unpaid interest upon the sale or retirement of a Debt Security)
denominated in, or determined by reference to, a foreign currency, an accrual
basis U.S. Holder that is required to accrue interest income prior to the date
of receipt will recognize ordinary income or loss measured by the difference
between the exchange rate used to accrue interest income pursuant to one of the
two above methods and the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.
ORIGINAL ISSUE DISCOUNT
General. The following is a summary of the principal federal income tax
consequences of the ownership of Debt Securities issued at an original issue
discount. It is based in part upon the rules governing original issue discount
that are set forth in Sections 1271 through 1275 of the Code and in Treasury
regulations thereunder (the "OID REGULATIONS"). The following summary does not
discuss the federal income tax consequences of an investment in contingent
payment debt instruments. In the event we issue contingent payment debt
instruments, the applicable prospectus supplement will describe the material
federal income tax consequences thereof.
A Debt Security, other than a Debt Security with a term of one year or
less (a "SHORT-TERM DEBT SECURITY"), will be treated as issued at an original
issue discount (a "DISCOUNT DEBT SECURITY") if the excess of the Debt Security's
"stated redemption price at maturity" over its issue price is more than a "de
minimis amount" (as defined below). Generally, the issue price of a Debt
Security will be the first price at which a substantial amount of Debt
Securities included in the issue of which the Debt Security is a part is sold to
persons other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. The
stated redemption price at maturity of a Debt Security is the total of all
payments provided by the Debt Security that are not payments of "QUALIFIED
STATED INTEREST." A qualified stated interest payment is generally any one of a
series of stated interest payments on a Debt Security that are unconditionally
payable at least annually during the entire term of the Debt Security at a
single fixed rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Debt Security.
Special rules for "Floating Rate Debt Securities" (as defined below under
"Original Issue Discount -- Floating Rate Debt Securities") are described below
under "Original Issue Discount -- Floating Rate Debt Securities."
In general, if the excess of a Debt Security's stated redemption price
at maturity over its issue price is less than 1/4 of 1 percent of the Debt
Security's stated redemption price at maturity multiplied by the number of
complete years to its maturity (the "DE MINIMIS AMOUNT"), then such excess, if
any, constitutes "DE MINIMIS ORIGINAL ISSUE DISCOUNT" and the Debt Security is
not a Discount Debt Security. Unless the election described below under
"Original Issue Discount--Election to Treat All Interest as Original Issue
Discount" is made, a U.S. Holder of a Debt Security with de minimis original
issue discount must include such de minimis original issue
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discount in income as capital gain as stated principal payments on the Debt
Security are made. The includible amount with respect to each such payment will
equal the product of the total amount of the Debt Security's de minimis original
issue discount and a fraction, the numerator of which is the amount of the
principal payment made and the denominator of which is the stated principal
amount of the Debt Security.
U.S. Holders of Discount Debt Securities having a maturity of more than
one year from their date of issue must include original issue discount ("OID")
in income calculated on a constant-yield method before the receipt of cash
attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Debt Security. The
amount of OID includible in income by a U.S. Holder of a Discount Debt Security
is the sum of the daily portions of OID with respect to the Discount Debt
Security for each day during the taxable year or portion of the taxable year on
which the U.S. Holder holds such Discount Debt Security ("ACCRUED OID"). The
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period. Accrual periods
with respect to a Debt Security may be of any length selected by the U.S. Holder
and may vary in length over the term of the Debt Security as long as (i) no
accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Debt Security occurs on either the final or first
day of an accrual period. The amount of OID allocable to an accrual period
equals the excess of (a) the product of the Discount Debt Security's adjusted
issue price at the beginning of the accrual period and such Debt Security's
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of the payments of qualified stated interest on the Debt Security
allocable to the accrual period. The "ADJUSTED ISSUE PRICE" of a Discount Debt
Security at the beginning of any accrual period is the issue price of the Debt
Security increased by (x) the amount of accrued OID for each prior accrual
period and decreased by (y) the amount of any payments previously made on the
Debt Security that were not qualified stated interest payments. For purposes of
determining the amount of OID allocable to an accrual period, if an interval
between payments of qualified stated interest on the Debt Security contains more
than one accrual period, the amount of qualified stated interest payable at the
end of the interval (including any qualified stated interest that is payable on
the first day of the accrual period immediately following the interval) is
allocated pro rata on the basis of relative lengths to each accrual period in
the interval, and the adjusted issue price at the beginning of each accrual
period in the interval must be increased by the amount of any qualified stated
interest that has accrued prior to the first day of the accrual period but that
is not payable until the end of the interval. The amount of OID allocable to an
initial short accrual period may be computed using any reasonable method if all
other accrual periods other than a final short accrual period are of equal
length. The amount of OID allocable to the final accrual period is the
difference between (x) the amount payable at the maturity of the Debt Security
(other than any payment of qualified stated interest) and (y) the Debt
Security's adjusted issue price as of the beginning of the final accrual period.
Acquisition Premium. A U.S. Holder that purchases a Discount Debt
Security for an amount less than or equal to the sum of all amounts payable on
the Debt Security after the purchase date other than payments of qualified
stated interest but in excess of its adjusted issue price (any such excess being
"ACQUISITION PREMIUM") and that does not make the election described
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below under "Original Issue Discount--Election to Treat All Interest as Original
Issue Discount" is permitted to reduce the daily portions of OID by a fraction,
the numerator of which is the excess of the U.S. Holder's adjusted basis in the
Debt Security immediately after its purchase over the adjusted issue price of
the Debt Security, and the denominator of which is the excess of the sum of all
amounts payable on the Debt Security after the purchase date, other than
payments of qualified stated interest, over the Debt Security's adjusted issue
price.
Pre-Issuance Accrued Interest. If (1) a portion of the initial purchase
price of a Debt Security is attributable to pre-issuance accrued interest, (2)
the first stated interest payment on the Debt Security is to be made within one
year of the Debt Security's issue date and (3) the payment will equal or exceed
the amount of pre-issuance accrued interest, then the issue price of the Debt
Security may be computed by reducing the issue price (as determined under
"Original Issue Discount--General") by the amount of pre-issuance accrued
interest. In that event, a portion of the first stated interest payment will be
treated as a return of the excluded pre-issuance accrued interest and not as an
amount payable on the Debt Security.
Debt Securities Subject to Contingencies Including Optional Redemption.
In general, if a Debt Security provides for an alternative payment schedule or
schedules applicable upon the occurrence of a contingency or contingencies and
the timing and amounts of the payments that comprise each payment schedule are
known as of the issue date, and if, based on all the facts and circumstances as
of the issue date, a single payment schedule is significantly more likely than
not to occur, then the yield and maturity of the Debt Security are computed
based on that payment schedule.
Notwithstanding the general rule described in the preceding paragraph,
if we have an unconditional option or options to redeem a Debt Security, or the
Holder has an unconditional option or options to cause a Debt Security to be
repurchased, prior to the Debt Security's stated maturity, then (i) in the case
of our option or options, we will be deemed to exercise or not exercise an
option or combination of options in the manner that minimizes the yield on the
Debt Security and (ii) in the case of an option or options of the Holder, the
Holder will be deemed to exercise or not exercise an option or combination of
options in the manner that maximizes the yield on the Debt Security. For
purposes of those calculations, the yield on the Debt Security is determined by
using any date on which the Debt Security may be redeemed or repurchased as the
maturity date and the amount payable on such date in accordance with the terms
of the Debt Security as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs
or does not occur contrary to an assumption made according to the above rules (a
"CHANGE IN CIRCUMSTANCES") then, except to the extent that a portion of the Debt
Security is repaid as a result of the change in circumstances and solely for
purposes of the accrual of OID, the yield and maturity of the Debt Security are
redetermined by treating the Debt Security as reissued on the date of the change
in circumstances for an amount equal to the Debt Security's adjusted issue price
on that date.
Election to Treat All Interest as Original Issue Discount. A U.S.
Holder may elect to include in gross income all interest that accrues on a Debt
Security using the constant-yield method
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described above under the heading "Original Issue Discount -- General," with the
modifications described below. For purposes of this election, interest includes
stated interest, OID, de minimis original issue discount, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium (described below under "U.S. Holders -- Debt Securities Purchased
at a Premium") or acquisition premium.
In applying the constant-yield method to a Debt Security with respect
to which this election has been made, the issue price of the Debt Security will
equal the electing U.S. Holder's adjusted basis in the Debt Security immediately
after its acquisition, the issue date of the Debt Security will be the date of
its acquisition by the electing U.S. Holder, and no payments on the Debt
Security will be treated as payments of qualified stated interest. This election
will generally apply only to the Debt Security with respect to which it is made
and may not be revoked without the consent of the IRS. If this election is made
with respect to a Debt Security with amortizable bond premium, then the electing
U.S. Holder will be deemed to have elected to apply amortizable bond premium
against interest with respect to all debt instruments with amortizable bond
premium (other than debt instruments the interest on which is excludible from
gross income) held by the electing U.S. Holder as of the beginning of the
taxable year in which the Debt Security with respect to which the election is
made is acquired or thereafter acquired. The deemed election with respect to
amortizable bond premium may not be revoked without the consent of the IRS.
If the election to apply the constant-yield method to all interest on a
Debt Security is made with respect to a Market Discount Debt Security (as
defined below under "U.S. Holders -- Market Discount"), the electing U.S. Holder
will be treated as having made the election discussed below under "Market
Discount" to include market discount in income currently over the life of all
debt instruments with market discount acquired by the electing U.S.
Holder on or after the first day of the first taxable year to which the election
applies.
Floating Rate Debt Securities. Debt Securities that bear interest at a
floating rate ("FLOATING RATE DEBT SECURITIES") generally will bear interest at
a "qualified floating rate" and thus will be treated as "variable rate debt
instruments" under the OID Regulations. A Floating Rate Debt Security will
qualify as a "variable rate debt instrument" under the OID Regulations if (a)
its issue price does not exceed the total noncontingent principal payments due
under the Floating Rate Debt Security by more than a specified de minimis amount
and (b) it does not provide for stated interest other than stated interest, paid
or compounded at least annually, at current values of (1) one or more qualified
floating rates, (2) a single fixed rate and one or more qualified floating
rates, (3) a single "objective rate," or (4) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A "QUALIFIED FLOATING RATE" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Floating Rate Debt Security is denominated. Although a multiple of a qualified
floating rate will generally not itself constitute a qualified floating rate, a
variable rate equal to the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35 will constitute a
qualified floating rate. A variable rate equal to
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the product of a qualified floating rate and a fixed multiple that is greater
than 0.65 but not more than 1.35, increased or decreased by a fixed rate, will
also constitute a qualified floating rate. In addition, under the OID
Regulations, if a Debt Security provides for two or more qualified floating
rates that can reasonably be expected to have approximately the same values
throughout the term of the Floating Rate Debt Security (e.g., two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Floating Rate Debt Security's issue date), then such qualified
floating rates will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a maximum numerical limitation (i.e., a cap) or a minimum numerical limitation
(i.e., a floor) may, under certain circumstances, fail to be treated as a
qualified floating rate under the OID Regulations unless such cap or floor is
fixed throughout the term of the Debt Security or is not reasonably expected
significantly to affect the yield on the Debt Security.
An "OBJECTIVE RATE" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information (e.g., one or more qualified
floating rates or the yield of actively traded personal property) that is not
within the control of the issuer or a related party and is not unique to the
circumstances of the issuer or a related party such as dividends, profits or the
value of the issuer's stock. The OID Regulations also provide that other
variable interest rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Floating Rate Debt Security will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first half of
the Floating Rate Debt Security's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Floating Rate Debt Security's term. A "qualified inverse floating rate"
is any objective rate where such rate is equal to a fixed rate minus a qualified
floating rate, as long as variations in the rate can reasonably be expected to
reflect inversely contemporaneous variations in the qualified floating rate. The
OID Regulations also provide that if a Floating Rate Debt Security provides for
stated interest at a fixed rate for an initial period of one year or less
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Floating Rate Debt Security's
issue date is intended to approximate the fixed rate (e.g., the value of the
variable rate on the issue date does not differ from the value of the fixed rate
by more than 25 basis points), then the fixed rate and the variable rate
together will constitute either a single qualified floating rate or objective
rate, as the case may be.
A qualified floating rate or objective rate in effect at any time
during the term of the instrument must be set at a "current value" of that rate.
A "CURRENT VALUE" of a rate is the value of the rate on any day that is no
earlier than 3 months prior to the first day on which that value is in effect
and no later than 1 year following that first day.
If a Floating Rate Debt Security that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof qualifies as a "variable rate debt instrument" under the OID
Regulations, then any stated interest on such Floating Rate Debt Security which
is unconditionally payable in cash or property (other than our debt instruments)
at least annually will constitute qualified stated interest and will be taxed
accordingly.
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Thus, a Floating Rate Debt Security that provides for stated interest at either
a single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with OID unless
the Floating Rate Debt Security is issued at a "true" discount (i.e., at a price
below the Debt Security's stated principal amount) in excess of a specified de
minimis amount. OID on such a Floating Rate Debt Security arising from "true"
discount is allocated to an accrual period using the constant yield method
described above by assuming that the variable rate is a fixed rate equal to (i)
in the case of a qualified floating rate or qualified inverse floating rate, the
value, as of the issue date, of the qualified floating rate or qualified inverse
floating rate, or (ii) in the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Floating Rate Debt Security.
In general, any other Floating Rate Debt Security that qualifies as a
"variable rate debt instrument" will be converted into an "equivalent" fixed
rate debt instrument for purposes of determining the amount and accrual of OID
and qualified stated interest on the Debt Security. The OID Regulations
generally require that such a Floating Rate Debt Security be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Floating Rate Debt Security with a fixed rate equal to the value of the
qualified floating rate or qualified inverse floating rate, as the case may be,
as of the Floating Rate Debt Security's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Floating Rate Debt Security is converted into a fixed rate that reflects the
yield that is reasonably expected for the Floating Rate Debt Security. In the
case of a Floating Rate Debt Security that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or a
qualified inverse floating rate, if the Floating Rate Debt Security provides for
a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Floating Rate Debt Security as of
the Floating Rate Debt Security's issue date is approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Floating Rate
Debt Security is then converted into an "equivalent" fixed rate debt instrument
in the manner described above.
Once the Floating Rate Debt Security is converted into an "equivalent"
fixed rate debt instrument pursuant to the foregoing rules, the amount of OID
and qualified stated interest, if any, are determined for the "equivalent" fixed
rate debt instrument by applying the general OID rules to the "equivalent" fixed
rate debt instrument and a U.S. Holder of the Floating Rate Debt Security will
account for such OID and qualified stated interest as if the U.S. Holder held
the "equivalent" fixed rate debt instrument. In each accrual period, appropriate
adjustments will be made to the amount of qualified stated interest or OID
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Floating Rate Debt Security during the accrual
period.
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If a Floating Rate Debt Security does not qualify as a "variable rate
debt instrument" under the OID Regulations, then the Floating Rate Debt Security
would be treated as a contingent payment debt obligation. Special United States
federal income tax considerations applicable to Floating Rate Debt Securities
that are treated as contingent payment debt obligations will be more fully
described in the applicable prospectus supplement.
Short-Term Debt Securities. In general, an individual or other cash
basis U.S. Holder of a short-term Debt Security is not required to accrue OID
(as specially defined below for the purposes of this paragraph and the
immediately following paragraph) for United States federal income tax purposes
unless it elects to do so (but may be required to include any stated interest in
income as the interest is received). Accrual basis U.S. Holders and certain
other U.S. Holders, including banks, regulated investment companies, dealers in
securities, common trust funds, U.S. Holders who hold Debt Securities as part of
certain identified hedging transactions, certain pass-thru entities and cash
basis U.S. Holders who so elect, are required to accrue OID on short-term Debt
Securities on either a straight-line basis or under the constant-yield method
(based on daily compounding), at the election of the U.S. Holder. In the case of
a U.S. Holder not required and not electing to include OID in income currently,
any gain realized on the sale, exchange or retirement of the short-term Debt
Security will be ordinary income to the extent of the OID accrued on a
straight-line basis (unless an election is made to accrue the OID under the
constant-yield method) through the date of sale, exchange or retirement. U.S.
Holders who are not required and do not elect to accrue OID on short-term Debt
Securities will be required to defer deductions for interest on borrowings
incurred or continued to purchase or carry such short-term Debt Securities in an
amount not exceeding the deferred interest income until the deferred interest
income is realized.
For purposes of determining the amount of OID subject to these rules,
all interest payments on a short-term Debt Security, including stated interest,
are included in the short-term Debt Security's stated redemption price at
maturity.
Foreign Currency Discount Debt Securities. OID for any accrual period
on a Discount Debt Security that is denominated in, or determined by reference
to, a foreign currency will be determined in the foreign currency and then
translated into U.S. dollars in the same manner as stated interest accrued by an
accrual basis U.S. Holder, as described above under "Payments of Interest --
Foreign Currency Denominated Interest." Upon receipt of an amount attributable
to OID (whether in connection with a payment of interest or the sale or
retirement of a Debt Security), a U.S. Holder may recognize ordinary income or
loss.
MARKET DISCOUNT
A Debt Security, other than a short-term Debt Security, will be treated
as purchased at a market discount (a "MARKET DISCOUNT DEBT SECURITY") if the
Debt Security's stated redemption price at maturity or, in the case of a
Discount Debt Security, the Debt Security's "revised issue price," exceeds the
amount for which the U.S. Holder purchased the Debt Security by at least 1/4 of
1 percent of such Debt Security's stated redemption price at maturity or revised
issue price, respectively, multiplied by the number of complete years to the
Debt Security's maturity. If such
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excess is not sufficient to cause the Debt Security to be a Market Discount Debt
Security, then such excess constitutes "DE MINIMIS MARKET DISCOUNT." The Code
provides that, for these purposes, the "REVISED ISSUE PRICE" of a Debt Security
generally equals its issue price, increased by the amount of any OID that has
accrued on the Debt Security.
Any gain recognized on the maturity or disposition of a Market Discount
Debt Security will be treated as ordinary income to the extent that such gain
does not exceed the accrued market discount on such Debt Security.
Alternatively, a U.S. Holder of a Market Discount Debt Security may elect to
include market discount in income currently over the life of the Debt Security.
Such an election shall apply to all debt instruments with market discount
acquired by the electing U.S. Holder on or after the first day of the first
taxable year to which the election applies. This election may not be revoked
without the consent of the IRS.
Market discount on a Market Discount Debt Security will accrue on a
straight-line basis unless the U.S. Holder elects to accrue such market discount
on a constant-yield method. Such an election shall apply only to the Debt
Security with respect to which it is made and may not be revoked without the
consent of the IRS. A U.S. Holder of a Market Discount Debt Security that does
not elect to include market discount in income currently generally will be
required to defer deductions for interest on borrowings allocable to such Debt
Security in an amount not exceeding the accrued market discount on such Debt
Security until the earlier of the maturity or disposition of such Debt Security.
DEBT SECURITIES PURCHASED AT A PREMIUM
A U.S. Holder that purchases a Debt Security for an amount in excess of
its principal amount, or in the case of a Discount Debt Security, its stated
redemption price at maturity, may elect to treat such excess as "amortizable
bond premium," in which case the amount required to be included in the U.S.
Holder's income each year with respect to interest on the Debt Security will be
reduced by the amount of amortizable bond premium allocable (based on the Debt
Security's yield to maturity) to such year. A U.S. Holder who makes such
election must reduce such Holder's tax basis in the Debt Security by the amount
of amortized premium. In the case of a Debt Security that is denominated in, or
determined by reference to a foreign currency, bond premium will be computed in
units of foreign currency, and amortizable bond premium will reduce interest
income in units of the foreign currency. At the time amortized bond premium
offsets interest income, exchange gain or loss (taxable as ordinary income or
loss) is realized measured by the difference between exchange rates at that time
and at the time of the acquisition of the Debt Securities. Any election to
amortize bond premium shall apply to all bonds (other than bonds the interest on
which is excludible from gross income) held by the U.S. Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the U.S. Holder, and is irrevocable without the consent of the IRS. See also
"Original Issue Discount -- Election to Treat All Interest as Original Issue
Discount."
PURCHASE, SALE AND RETIREMENT OF THE DEBT SECURITIES
A U.S. Holder's tax basis in a Debt Security will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the U.S.
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Holder's income with respect to the Debt Security and the amount, if any, of
income attributable to de minimis original issue discount and de minimis market
discount included in the U.S. Holder's income with respect to the Debt Security,
and reduced by (i) the amount of any payments that are not qualified stated
interest payments, and (ii) the amount of any amortizable bond premium applied
to reduce interest on the Debt Security. The U.S. dollar cost of a Debt Security
purchased with a foreign currency will generally be the U.S. dollar value of the
purchase price on the date of purchase or, in the case of Debt Securities traded
on an established securities market, as defined in the applicable Treasury
Regulations, that are purchased by a cash basis U.S. Holder (or an accrual basis
U.S. Holder that so elects), on the settlement date for the purchase.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the tax basis of the Debt Security. The
amount realized on a sale or retirement for an amount in foreign currency will
be the U.S. dollar value of such amount on the date of sale or retirement or, in
the case of Debt Securities traded on an established securities market, as
defined in the applicable Treasury Regulations, sold by a cash basis U.S. Holder
(or an accrual basis U.S. Holder that so elects), on the settlement date for the
sale. Except to the extent described above under "Original Issue Discount --
Short-Term Debt Securities" or "Market Discount" or described in the next
succeeding paragraph or attributable to accrued but unpaid interest, gain or
loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss. Gain recognized on the disposition of a capital asset held by an
individual taxpayer for more than one year is generally subject to a maximum
rate of tax of 20%. U.S. Holders are urged to consult their own tax advisors
with respect to recently enacted capital gains legislation.
Gain or loss recognized by a U.S. Holder on the sale or retirement of a
Debt Security that is attributable to changes in exchange rates will be treated
as ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Debt Security or on the sale
or retirement of a Debt Security will have a tax basis equal to its U.S. dollar
value at the time such interest is received or at the time of such sale or
retirement. Foreign currency that is purchased will generally have a tax basis
equal to the U.S. dollar value of the foreign currency on the date of purchase.
Any gain or loss recognized on a sale or other disposition of foreign currency
(including its use to purchase Debt Securities or upon exchange for U.S.
dollars) will be ordinary income or loss.
AMORTIZING DEBT SECURITIES
The applicable prospectus supplement will contain a discussion of
special United States federal income tax rules applicable to Debt Securities
that provide for partial principal payments prior to stated maturity.
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UNITED STATES ALIEN HOLDERS
An alien individual who is neither a citizen nor a lawful permanent
resident of the United States may, subject to certain exceptions, be deemed to
be a resident of the United States for U.S. federal income tax purposes by
virtue of being present in the United States on at least 31 days in the calendar
year and for an aggregate of at least 183 days during a three-calendar-year
period ending in the current calendar year (counting for such purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year and one-sixth of the days present in the second
preceding year). Resident aliens are subject to United States federal income tax
as if they were United States citizens and residents. See "U.S. Holders" above.
Under present United States federal income and estate tax law and
subject to the discussion of backup withholding below:
(1) payments of principal, premium (if any) and interest
(including OID) by us or any of our paying agents to any holder of a
Debt Security who or which is a United States Alien Holder will not be
subject to United States federal withholding tax (and, except as
discussed in paragraph (4) below, will not generally be subject to U.S.
federal income tax) if, in the case of premium (if any), interest or
OID, (a) the beneficial owner of the Debt Security does not actually or
constructively own 10% or more of the total combined voting power of
all classes of our stock entitled to vote, (b) the beneficial owner of
the Debt Security is not a controlled foreign corporation that is
related to us through stock ownership, (c) the interest on the Debt
Security is not contingent interest to which Section 871(h)(4)(A) of
the Code is applicable, and (d) either (A) the beneficial owner of the
Debt Security certifies to us or our agent, under penalties of perjury,
that it is not a U.S. Holder and provides its name and address or (B) a
securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "FINANCIAL INSTITUTION") and holds the Debt Security
certifies to us or our agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a
financial institution acting on behalf of the beneficial owner and
furnishes the payor with a copy thereof;
(2) a United States Alien Holder of a Debt Security will not
be subject to United States federal withholding tax on any gain
realized on the sale or exchange of a Debt Security;
(3) a Debt Security held by an individual who at death is not
a citizen or resident of the United States will not be includible in
the individual's gross estate for purposes of the United States federal
estate tax as a result of the individual's death if the individual did
not actually or constructively own 10% or more of the total combined
voting power of all classes of our stock entitled to vote, the income
on the Debt Security would not have been effectively connected with a
United States trade or business of the individual at the individual's
death and, in the case of a Debt Security on which all or a portion of
the interest payments are contingent interest to which Section
871(h)(4)(A) is applica-
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ble, to the extent that the value of such Debt Security is not
allocable to such contingent interest;
(4) if premium, interest or OID on a Debt Security of a United
States Alien Holder is effectively connected with the conduct of a
United States trade or business, then such holder, with respect to such
premium, interest or OID, (a) will be exempt from United States
withholding tax (upon such holder's delivery of a properly completed
and periodically updated IRS Form 4224 or successor form thereto), (b)
will be subject to United States federal income tax in the same manner
and at the same rates as if such holder were a U.S. Holder and (c) may
be subject, if the United States Alien Holder is a corporation, to the
"branch profits tax" at a 30 % rate (which tax is generally imposed on
a foreign corporation on the actual or deemed repatriation from the
United States of earnings and profits attributable to income that is
effectively connected with the conduct of a U.S. trade or business);
and
(5) a United States Alien Holder of a Debt Security will not
be subject to United States federal income tax on any gain realized on
the sale or exchange of a Debt Security unless (a) such gain is
effectively connected with the conduct of a United States trade or
business, in which case such holder will be subject to United States
federal income tax on such gain in the same manner and at the same
rates as if such holder were a U.S. Holder and such holder may be
subject to the branch profits tax described in clause (4)(c) above, (b)
subject to certain exceptions, the United States Alien Holder is an
individual who holds the Debt Security as a capital asset and is
present in the United States for 183 days or more in the taxable year
of the disposition, or (c) the United States Alien Holder is subject to
tax pursuant to provisions of United States tax law applicable to
certain United States expatriates (including certain former citizens or
residents of the United States).
The payment of premium, interest or OID that qualifies for neither the
withholding exemption set forth in paragraph (1) above nor the withholding
exemption set forth in paragraph (4) above will be subject to U.S. federal
withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to
reduce or eliminate such withholding. To claim the benefit of a tax treaty, a
United States Alien Holder must deliver a properly completed and periodically
updated IRS Form 1001 or successor form.
Treasury regulations that will be effective with respect to payments
made after December 31, 1999 (the "WITHHOLDING REGULATIONS"), will provide
alternative methods for satisfying the certification requirements described in
clause (1)(d) above. The Withholding Regulations also will require, in the case
of Debt Securities held by a foreign partnership, that (x) such certification
requirements be satisfied by the partners and (y) the partnership provide
certain information, including its U.S. taxpayer identification number. A
look-through rule will apply in the case of tiered partnerships. Under the
Withholding Regulations, a United States Alien Holder who is claiming the
benefits of a treaty may be required to obtain a U.S. taxpayer identification
number, which may require providing certain documentary evidence issued by a
foreign governmental
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authority to prove residence in the foreign country. Certain special procedures
are provided in the Withholding Regulations for payments through qualified
intermediaries.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS
In general, information reporting requirements will apply to payments
of principal, any premium and interest on a Debt Security to non-corporate U.S.
Holders, the payment of the proceeds of the sale of a Debt Security before
maturity within the United States to non-corporate U.S. Holders and the accrual
of OID on a Discount Debt Security with respect to non-corporate U.S. Holders,
and "backup withholding" at a rate of 31% will apply to such payments and to
payments of OID if the U.S. Holder fails to provide an accurate taxpayer
identification number or to report all interest and dividends required to be
shown on such U.S. Holder's federal income tax returns. Holders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption if applicable. The
amount of any backup withholding from a payment to a U.S. Holder will be allowed
as a credit against such U.S. Holder's U.S. federal income tax liability and may
entitle such U.S. Holder to a refund, provided that the required information is
furnished to the IRS.
UNITED STATES ALIEN HOLDERS
Backup withholding will generally not apply to payments of principal,
premium (if any) and interest (including OID) made by us or a paying agent to a
United States Alien Holder on a Debt Security if the certification described in
clause (1)(d) under "United States Alien Holders" above is received, provided
that the payor does not have actual knowledge that the holder is a United States
person. We may be required to report annually to the IRS and to each United
States Alien Holder the amount of interest paid to, and the tax withheld, if
any, with respect to such Holder. These information reporting requirements apply
regardless of whether withholding is required. Copies of the information returns
reporting such withholding may also be made available to the tax authorities in
the country in which the United States Alien Holder resides under the provisions
of an applicable income tax treaty.
Payments of the proceeds from the sale by a United States Alien Holder
of a Debt Security made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that if the
broker is a United States person, a controlled foreign corporation for United
States tax purposes, a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period or, effective after December 31, 1999, in certain other cases
specified under the Withholding Regulations, information reporting may apply to
such payments. Payments of the proceeds from the sale of a Debt Security to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the holder or beneficial owner certifies as to its
non-United States status or otherwise establishes an exemption from information
reporting and backup withholding.
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THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY. YOU SHOULD CONSULT YOUR OWN PERSONAL TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES OF THE DEBT SECURITIES TO YOU, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, FEDERAL, LOCAL, FOREIGN AND OTHER TAX LAWS
AND POSSIBLE CHANGES IN TAX LAW.
PLAN OF DISTRIBUTION
We may sell the Debt Securities in and/or outside the United States:
(1) through underwriters or dealers; (2) directly to a limited number of
purchasers or to a single purchaser; or (3) through agents. The applicable
prospectus supplement with respect to the Debt Securities will set forth the
terms of the offering of the Debt Securities, including the name or names of any
underwriters or agents, if any, the purchase price of the Debt Securities and
the proceeds to us from such sale. In addition, the applicable prospectus
supplement will set forth any delayed delivery arrangements, any underwriting
discounts and other items constituting underwriters' compensation, any initial
public offering price and any discounts or concessions allowed or re-allowed or
paid to dealers. Any initial public offering price and any discount or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If underwriters are used in the sale, the Debt Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Debt Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Debt Securities will be named
in the prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such prospectus supplement. Unless otherwise set forth in the
prospectus supplement relating thereto, the obligations of the underwriters to
purchase the offered Debt Securities will be subject to conditions precedent and
the underwriters will be obligated to purchase all the offered Debt Securities
if any are purchased.
If dealers are used in the sale of Debt Securities in respect of which
this prospectus is delivered, we will sell such Debt Securities to the dealers
as principals. The dealers may then resell such Debt Securities to the public at
varying prices to be determined by such dealers at the time of resale. The names
of the dealers and the terms of the transaction will be set forth in the
prospectus supplement relating thereto.
The Debt Securities may be sold through agents we designate from time
to time. Any agent involved in the offer or sale of the Debt Securities in
respect to which this prospectus is delivered will be named, and any commissions
payable by us to such agent will be set forth, in the prospectus supplement
relating thereto. Unless otherwise indicated in the prospectus supplement, any
such agent will be acting on a best efforts basis for the period of its
appointment.
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We may sell the Debt Securities directly to institutional investors or
others, who may be deemed to be underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") with respect to any
resale thereof. The terms of any such sales, including the terms of any bidding
or auction process, will be described in the prospectus supplement relating
thereto.
Agents, dealers and underwriters may be entitled under agreements
entered into with us to indemnification by us against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, dealers or underwriters may be required to make
in respect thereof. Agents, dealers and underwriters may be our customers,
engage in transactions with us, or perform services for us in the ordinary
course of business.
In connection with an offering, certain persons participating in such
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Debt Securities. Specifically, such persons may overallot such
offering, creating a syndicate short position. In addition, such persons may bid
for, and purchase, the Debt Securities in the open market to cover syndicate
shorts or to stabilize the price of the Debt Securities. Finally, such persons
may reclaim selling concessions allowed for distributing the Debt Securities in
an offering, if such persons repurchase previously distributed Debt Securities
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Debt
Securities above independent market levels. Such persons are not required to
engage in these activities, and may end any of these activities at any time. The
Debt Securities may or may not be listed on a national securities exchange. We
cannot assure you as to the future liquidity of the trading market, if any, for
any Debt Securities issued.
LEGAL MATTERS
Certain legal matters in connection with the Debt Securities offered
hereby will be passed upon for us by our counsel Wachtell, Lipton, Rosen & Katz,
New York, New York and for any underwriters or agents by Shearman & Sterling,
New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and
December 31, 1996 and for each of the three years in the period ended December
31, 1997 incorporated in this prospectus by reference from our Annual Report on
Form 10-K for the year ended December 31, 1997, as amended by the Form 10K-A
filed with the Securities and Exchange Commission on June 26, 1998 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of NSK-Warner as of March 31, 1998 and 1997,
and for each of the years in the three-year period ended March 31, 1998, have
been incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS AND THE PROSPECTUS
SUPPLEMENT ARE AN OFFER TO SELL OR TO BUY ONLY THE DEBT SECURITIES OFFERED
HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO
DO SO. THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
OR THE PROSPECTUS SUPPLEMENT IS CURRENT ONLY AS OF THE DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
PROSPECTUS
PAGE
About This Prospectus.........................................................2
Where You Can Find More Information...........................................2
Special Note Regarding Forward-Looking Statements.............................3
The Company...................................................................4
Risk Factors..................................................................6
Use of Proceeds..............................................................12
Ratio of Earnings to Fixed Charges...........................................12
Description of Debt Securities...............................................13
Certain U.S. Federal Income Tax Considerations...............................28
Plan of Distribution.........................................................42
Legal Matters................................................................43
Experts......................................................................43
-----------------------------------
$300,000,000
BORG-WARNER AUTOMOTIVE, INC.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and
distribution of the securities being registered, all of which will be paid by
the Company.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration fee.................................. $ 83,400
NYSE and Blue Sky fees and expenses.................................................. 10,000
Printing and engraving expenses...................................................... 130,000
Legal fees and expenses.............................................................. 100,000
Trustee fees and expenses............................................................ 6,000
Accounting fees and expenses......................................................... 15,000
Rating Agency fees................................................................... 170,000
Miscellaneous........................................................................ 25,600
--------
Total....................................................................... $ 540,000
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify its officers and
directors against the expenses, including attorney's fees, judgments, fines or
settlement amounts actually and reasonably incurred by them in connection with
the defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, except that if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State of
Delaware, or another court in which the suit was brought, shall determine upon
application that, in view of all of the circumstances of the case, such person
is fairly and reasonably entitled to indemnity.
As permitted by Section 102 of the DGCL, the Restated Certificate of
Incorporation of the Company provides that no director shall be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director other than (i) for breaches of the director's duty of loyalty to the
Company and its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
the unlawful payment of dividends or unlawful stock purchases or redemptions
under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Restated Certificate of Incorporation of the Company provides for
indemnification of its directors and officers to the fullest extent permitted by
the DGCL, and allows the Company to advance or reimburse litigation expenses
upon submission by the director, officer or employee of an undertaking to repay
such advances or reimbursements if it is ultimately determined that
indemnification is not available to such director or officer.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following documents are filed as a part of this Registration
Statement.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
1 Form of Underwriting Agreement.*
4.1 Form of Senior Debt Indenture.*
4.2 Form of Senior Debt Security.*
4.3 Form of Subordinated Debt Indenture.*
4.4 Form of Subordinated Debt Security.*
5 Opinion of Wachtell, Lipton, Rosen & Katz.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit
5).
23.3 Consent of KPMG Peat Marwick.
24 Powers of Attorney.
25 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939, as amended, of The First National
Bank of Chicago.
- ---------------------
* To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended, that are incorporated by reference in
the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c)-(g), (j) Not applicable.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted
from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of registration statement as of the time it was
declared effective.
(2) For the purposes of determining any liability
under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to
the securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
(i) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the
trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations prescribed
by the Commission under Section 305(b)(2) of the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of Chicago, State of Illinois, on November 6, 1998.
BORG-WARNER AUTOMOTIVE, INC.
By: /s/ John F. Fiedler
-------------------------------------
JOHN F. FIEDLER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on November 6, 1998.
SIGNATURE TITLE
--------- -----
/s/ John F. Fiedler
- --------------------------------- Chairman, Chief Executive Officer,
JOHN F. FIEDLER and Director (Principal Executive
Officer)
/s/Robin J. Adams
- --------------------------------- Vice President and Treasurer
ROBIN J. ADAMS (Principal Financial Officer)
/s/William C. Cline
- --------------------------------- Vice President and Controller
WILLIAM C. CLINE (Principal Accounting Officer)
*
- --------------------------------- Director
ANDREW F. BRIMMER
*
- --------------------------------- Director
JAMES J. KERLEY
*
- --------------------------------- Director
ALEXIS P. MICHAS
*
- --------------------------------- Director
JERE A. DRUMMOND
*
- --------------------------------- Director
IVAN W. GORR
II-5
<PAGE>
SIGNATURE TITLE
--------- -----
*
- --------------------------------- Director
JOHN RAU
*
- --------------------------------- Director
PAUL E. GLASKE
*
- --------------------------------- Director
WILLIAM E. BUTLER
/s/ Vincent M. Lichtenberger
- --------------------------------- As attorney-in-fact for the
VINCENT M. LICHTENBERGER officers and/or directors marked
by an asterisk.
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
5 Opinion of Wachtell, Lipton, Rosen & Katz.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 5).
23.3 Consent of KPMG Peat Marwick.
24 Powers of Attorney.
25 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939, as amended,
of The First National Bank of Chicago.
II-7
EXHIBIT 5
[WACHTELL, LIPTON, ROSEN & KATZ OPINION]
November 6, 1998
Borg-Warner Automotive, Inc.
200 South Michigan Avenue
Chicago, Illinois 60604
Ladies and Gentlemen:
We have acted as special counsel for Borg-Warner Automotive,
Inc., a Delaware corporation (the "Company"), in connection with the preparation
and filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-3, as it may be amended (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), for the registration of the offer and sale by the Company, from time to
time pursuant to the provisions of Rule 415 under the Securities Act, of up to
$300 million maximum aggregate initial offering price of debt securities of the
Company (the "Debt Securities"). Capitalized terms not otherwise defined herein
shall have the meaning ascribed to them in the Registration Statement.
The Debt Securities will constitute either senior or
subordinated debt of the Company and will be issued under, in the case of the
senior Debt Securities, an indenture between the Company and The First National
Bank of Chicago as trustee (the "Senior Debt Indenture"), and in the case of the
subordinated Debt Securities, an indenture to be between the Company and a bank
or trust company as trustee (the "Subordinated Debt Indenture"). The Senior Debt
Indenture and the Subordinated Debt Indenture are hereinafter referred to
collectively as the "Indentures." The Indentures will be filed as exhibits to
amendments to the Registration Statement.
<PAGE>
Borg-Warner Automotive, Inc.
November 6, 1998
Page 2
In this connection, we have reviewed: (i) the Restated
Certificate of Incorporation and By-Laws of the Company; (ii) a draft of the
Registration Statement and the form of Senior Debt Indenture; (iii) certain
resolutions adopted by the Board of Directors of the Company; and (iv) such
other documents, records and papers as we have deemed necessary or appropriate
in order to give the opinions set forth herein. We are familiar with the
proceedings heretofore taken by the Company in connection with the
authorization, registration, issuance and sale of the Debt Securities. We have,
with your consent, relied as to the factual matters on certificates or other
documents or information furnished by the Company or its officers and by
governmental authorities and upon such other documents and data that we have
deemed appropriate or necessary as a basis for the opinions hereinafter
expressed. In such review, we have assumed the genuineness of all signatures,
the authenticity of all documents, certificates and instruments submitted to us
as originals, the conformity with the originals of all documents submitted to us
as copies or as retrieved from the Securities and Exchange Commission's EDGAR
database, and the authenticity of the originals of such latter documents.
Based upon the foregoing, we are of the opinion that, except
as limited by (i) bankruptcy, insolvency, reorganization, moratorium, or other
similar laws now or hereafter in effect relating to creditors' rights generally,
(ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law), (iii) requirements that a claim
with respect to any Debt Securities denominated other than in United States
dollars (or a judgment denominated other than in United States dollars with
respect of such a claim) be converted into United States dollars at a rate of
exchange prevailing on a date determined pursuant to applicable law, and (iv)
governmental authority to limit, delay, or prohibit the making of payments
outside the United States or in foreign currency or currencies, or currency unit
or units, or composite currency or currencies:
1. When duly authorized officers of the Company have taken all
necessary action to approve the form of the Indentures, including the form of
Debt Securities, the Debt Securities and the Indentures will be duly authorized.
2. When the specific terms of a particular Debt Security and
its issuance and sale have been duly established in accordance with the Senior
Indenture or the Subordinated Indenture, as the case may be, and such Debt
Security has been duly executed and authenticated in accordance with the Senior
Indenture or Subordinated Indenture, as the case may be, and duly issued and
sold in accordance with the applicable definitive purchase, underwriting or
similar agreement approved by the Board of Directors of the Company upon payment
of the consideration therefor provided for therein, such Debt Security will
constitute the valid and binding obligation of the Company.
In connection with the opinions expressed above, we have
assumed with your consent that, at or prior to the time of the delivery of any
such Debt Security, (i) the Board of Directors of the Company, themselves or as
so delegated, shall have approved the specific sale
<PAGE>
Borg-Warner Automotive, Inc.
November 6, 1998
Page 3
and issuance of such Debt Security (including the terms thereof) and shall not
have modified or rescinded the duly authorized issuance and sale of such Debt
Security, (ii) the Registration Statement shall have been declared effective and
such effectiveness shall not have been terminated or rescinded, (iii) the
Subordinated Debt Indenture shall be similar to the form of Senior Indenture
with the differences noted in the Registration Statement which we have reviewed,
(iv) the final versions of the Registration Statement and Senior Indenture shall
not be substantially different from the versions we have reviewed, (v) the
applicable Trustee and the applicable Indentures shall have been qualified under
the Trust Indenture Act of 1939, as amended, and the rules and regulations
thereunder, (vi) (a) the Company shall have full power and authority to execute,
deliver and perform the obligations set forth in the applicable documents, (b)
the applicable documents shall have been duly authorized, executed and delivered
by the Company and (c) the execution and delivery of the applicable documents
and the performance by the Company of its obligations thereunder shall not have
violated, breached or otherwise given rise to a default under the terms or
provisions of its Restated Certificate of Incorporation as then in effect or
By-Laws as then in effect or of any material contract, commitment or other
obligation to which the Company is then a party, and such execution, delivery
and performance shall comply with any requirement or restriction imposed by any
court or governmental body then having jurisdiction over the Company, and (vii)
there shall not have occurred any change in law affecting the validity or
enforceability of such Debt Security. We have also assumed that none of the
terms of any Debt Security to be established subsequent to the date hereof nor
the issuance and sale of such Debt Security, nor the compliance by the Company
with the terms of such Security, will violate any applicable law or will result
in a violation of any provision of any instrument or agreement then binding upon
the Company, or any restriction imposed by any court or governmental body having
jurisdiction over the Company.
We are not members of the Bar of any jurisdiction other than
the State of New York and, with your consent, we express no opinion as to the
law of any jurisdiction other than the laws of the State of New York and the
General Corporation Law of the State of Delaware.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus that is a part of the Registration Statement. In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
General Rules and Regulations promulgated thereunder.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
DAK/jc
EXHIBIT 12
----------
BORG WARNER AUTOMOTIVE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ IN MILLIONS)
<TABLE>
<CAPTION>
FIXED CHARGES
EARNINGS (INTEREST EXPENSE
(EARNINGS BEFORE EXCLUDING THE
CUMULATIVE EFFECT OF BENEFIT OF
ACCOUNTING CHANGE CAPITALIZED INTEREST
INCREASED BY FIXED CHARGES, INCLUDING ONE-THIRD
CAPITALIZED INTEREST OF RENTAL EXPENSE --
AMORTIZATION EXPENSE APPROXIMATE PORTION RATIO OF EARNINGS
AND INCOME TAXES) REPRESENTING INTEREST) TO FIXED CHARGES
--------------------------- ------------------------ -------------------
<S> <C> <C> <C>
1993................. $ 77.7 $ 19.9 3.9
1994................. $ 124.0 $ 15.6 7.9
1995................. $ 130.8 $ 18.6 7.0
1996................. $ 82.0 $ 26.2 3.1
1997................. $ 189.9 $ 30.8 6.2
Six months:
1997................. $ 98.4 $ 15.3 6.4
1998................. $ 82.5 $ 15.8 5.2
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement of
Borg-Warner Automotive, Inc. on Form S-3 of our report dated January 30, 1998
(February 13, 1998 as to the third paragraph of Note 4) incorporated by
reference in the Annual Report on Form 10-K of Borg-Warner Automotive, Inc. for
the year ended December 31, 1997 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 6, 1998
EXHIBIT 23.3
[LETTERHEAD OF KPMG PEAT MARWICK]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Borg-Warner Automotive, Inc. on Form S-3 of our report dated April 24, 1998
incorporated by reference in the Annual Report on Form 10-K of Borg-Warner
Automotive, Inc. for the year ended December 31, 1997 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
/s/KPMG Peat Marwick
Tokyo, Japan
November 6, 1998
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoint John F. Fiedler, Laurene H. Horiszny and Vincent
M. Lichtenberger as their true and lawful attorneys-in-fact, with full power for
and on their behalf to execute, in their names and capacities as directors of
the Corporation, and to file with the Securities and Exchange Commission on
behalf of the Corporation under the Securities Act of 1933, as amended, any and
all Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the offering of debt securities by the
Corporation.
This Power of Attorney automatically ends upon the termination of Mr. Fiedler's,
Ms. Horiszny's and Mr. Lichtenberger's service with the Corporation.
In witness whereof, the undersigned have executed this Power of Attorney on this
30th day of September, 1998.
/s/John F. Fiedler /s/Ivan W. Gorr
- ------------------------ ------------------------
John F. Fiedler Ivan W. Gorr
/s/Andrew F. Brimmer /s/John Rau
- ------------------------ ------------------------
Andrew F. Brimmer John Rau
/s/Alexis P. Michas /s/James J. Kerley
- ------------------------ ------------------------
Alexis P. Michas James J. Kerley
/s/Jere A. Drummond /s/Paul E. Glaske
- ------------------------ ------------------------
Jere A. Drummond Paul E. Glaske
/s/William E. Butler
- ------------------------
William E. Butler
EXHIBIT 25
----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
BORG-WARNER AUTOMOTIVE, INC.
(EXACT NAME OF OBLIGORS AS SPECIFIED IN THEIR TRUST AGREEMENTS)
DELAWARE 13-3404508
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEBT SECURITIES
(TITLE OF INDENTURE SECURITIES)
<PAGE>
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.;
Federal Deposit Insurance Corporation,
Washington, D.C.; The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART
OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the
United States of America, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto
duly authorized, all in the City of Chicago and State of Illinois, on
the 27th day of October, 1998.
The First National Bank of Chicago,
Trustee
By /s/ Steven M. Wagner
-----------------------------------------
Steven M. Wagner
Vice President
* Exhibits 1, 2, 3 and 4 are herein incorporated by reference to Exhibits
bearing identical numbers in Item 16 of the Form T-1 of The First National Bank
of Chicago, filed as Exhibit 25 to the Registration Statement on Form S-3 of U S
WEST Capital Funding, Inc., filed with the Securities and Exchange Commission on
May 6, 1998 (Registration No. 333-51907-01).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
October 27, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an indenture of Borg-Warner Automotive,
Inc. to The First National Bank of Chicago, as Trustee the undersigned, in
accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended,
hereby consents that the reports of examinations of the undersigned, made by
Federal or State authorities authorized to make such examinations, may be
furnished by such authorities to the Securities and Exchange Commission upon its
request therefor.
Very truly yours,
The First National Bank of Chicago
By: /s/ Steven M. Wagner
-----------------------------------------
Steven M. Wagner
First Vice President
4
<PAGE>
EXHIBIT 7
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 06/30/98 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS C400
----
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RCFD
RC-A): ----
a. Noninterest-bearing balances and currency and coin(1)................... 0081 4,490,272 1.a.
b. Interest-bearing balances(2)............................................ 0071 5,586,990 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A)............... 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)............ 1773 8,974,952 2.b
3. Federal funds sold and securities purchased under agreements to
resell 1350 5,558,583 3.
4. Loans and lease financing receivables: RCFD
a. Loans and leases, net of unearned income (from Schedule ----
RC-C)...................................................................... 2122 28,257,868 4.a
b. LESS: Allowance for loan and lease losses............................... 3123 413,742 4.b
c. LESS: Allocated transfer risk reserve................................... 3128 0 4.c
RCFD
d. Loans and leases, net of unearned income, allowance, and ----
reserve (item 4.a minus 4.b and 4.c).................................... 2125 27,844,126 4.d
5. Trading assets (from Schedule RD-D)........................................ 3545 6,073,169 5.
6. Premises and fixed assets (including capitalized leases)................... 2145 721,430 6.
7. Other real estate owned (from Schedule RC-M)............................... 2150 6,827 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M)............................................. 2130 184,515 8.
9. Customers' liability to this bank on acceptances outstanding............... 2155 310,026 9.
10. Intangible assets (from Schedule RC-M)..................................... 2143 302,859 10.
11. Other assets (from Schedule RC-F).......................................... 2160 2,137,491 11.
12. Total assets (sum of items 1 through 11)................................... 2170 62,191,240 12.
</TABLE>
- ------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 06/30/98 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
</TABLE>
SCHEDULE RC-CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN
THOUSANDS
LIABILITIES -----------------
<S> <C> <C> <C>
13. Deposits: RCON
a. In domestic offices (sum of totals of columns A and C ----
from Schedule RC-E, part 1)............................................. 2200 21,810,607 13.a
(1) Noninterest-bearing(1).............................................. 6631 9,864,956 13.a1
(2) Interest-bearing.................................................... 6636 11,945,651 13.a2
RCFN
b. In foreign offices, Edge and Agreement subsidiaries, and ----
IBFs (from Schedule RC-E, part II)...................................... 2200 15,794,963 13.b
(1) Noninterest bearing................................................. 6631 482,528 13.b1
(2) Interest-bearing.................................................... 6636 15,312,435 13.b2
14. Federal funds purchased and securities sold under agreements
to repurchase: RCFD 2800 3,858,711 14
15. a. Demand notes issued to the U.S. Treasury RCON 2840 1,444,748 15.a
b. Trading Liabilities(from Schedule RC-D)................................. RCFD 3548 5,661,633 15.b
RCFD
16. Other borrowed money: ----
a. With original maturity of one year or less.............................. 2332 4,356,061 16.a
b. With original maturity of more than one year............................ A547 385,550 16.b
c. With original maturity of more than three years ........................ A548 320,386 16.c
17. Not applicable
18. Bank's liability on acceptance executed and outstanding.................... 2920 310,026 18.
19. Subordinated notes and debentures.......................................... 3200 2,200,000 19.
20. Other liabilities (from Schedule RC-G)..................................... 2930 1,176,564 20.
21. Total liabilities (sum of items 13 through 20)............................. 2948 57,319,249 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.............................. 3838 0 23.
24. Common stock............................................................... 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock)................... 3839 3,188,187 25.
26. a. Undivided profits and capital reserves.................................. 3632 1,467,324 26.a
b. Net unrealized holding gains (losses) on available-for-sale
securities.............................................................. 8434 18,040 26.b
27. Cumulative foreign currency translation adjustments........................ 3284 (2,418) 27.
28. Total equity capital (sum of items 23 through 27).......................... 3210 4,871,991 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22 and 28)....................................... 3300 62,191,240 29.
</TABLE>
<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
<S> <C> <C>
1. Indicate in the box at the right the number of the statement
below that best describes the most comprehensive level of
auditing work performed for the bank by independent external -----------
auditors as of any date during 1996...................................RCFD 6724 . ..... N/A Number
----------- M.1.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required
by state chartering authority)
</TABLE>
- ------------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
